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Payday loans of May 2022 in the United States

Payday loans
When obtaining a loan you should always compare the terms and conditions offered by different lenders in order to find the most suitable option

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Interest rates on payday loans in various US states

The legal status of payday loans in the USA

A payday loan is an expensive short-term financial solution. Some lenders call it cash advance. Typically, a borrower repays it on their next payday. We recommend getting payday loans only to cover unexpected expenses and emergencies. Each state regulates payday lending to protect its residents from predatory lending. Payday loans amount, interest, and fees must not exceed the value under your state law. More

Interest rates on payday loans in various US states

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On our website you can fill out a small application form for a payday loan

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Payday loans of May 2022

What is a payday loans in the US?

A payday loan is a type of unsecured personal loan that has extremely high interest rates. Also known as payday advance and cash advance loan, it implies that the lender gives out a sum of money based on the next paycheck that the borrower will receive. It is a short term loan, therefore, the repayment period ends on the day the borrower acquires their paycheck.

The borrower has to write a post dated check that is due on their next payday. If they fail to return the money of the loan on the due date, the lender can deposit the check.

The loan amount can vary from 100$ to 1000$, depending on the lenders and the state laws.

How to apply for a payday loan?

Payday loans are provided both online and in a traditional store form. Some lenders can process your application by fax or by phone.

The basic process includes following steps:

  1. Personal information. You will need to fill out your name, phone, address and social security number.
  2. Proof of income. It doesn't always have to be your salary statement. Any recent pay stubs, pension, unemployment benefits or disability statement letters will qualify just as well.
  3. Bank account. The lender will need to process your bank account information in order to deposit the loan proceeds it. If you don't have a bank account, some payday lenders may accept a prepaid card account. However, since it involves higher risks for them, the interest rate will also be considerably high.
  4. Fees and terms. In the concluding part of the application form you will need to review all the fees that the loan includes and carefully study the terms.

What are the main requirements for getting a payday loan?

Consumer Financial Protection Bureau states that there are only several basic requirements to be approved for a payday loan:

  • Be 18 years or older

  • A valid ID

  • Proof of steady income

  • An open bank account, a prepaid debit card or credit union account

Many payday lenders also ask for an active checking account, so that a post dated check can be issued. However, there are other ways to repay the loan, which we will cover later in the article.

The loan approval process can take as few as 15 minutes if you obtain the money from online lenders. In-office procedure might take a little longer. Also payday loans, unlike many other personal loans, do not require good credit history. It is important to note, that such a low entry threshold signifies high financial safety risks for the customer.

Ways to get a payday loan online

Typically, borrowers receive the loan on the same or next business day after their application in one of the following ways:

  • By cash. In case of an offline application, the borrowers are usually provided with the loan amount immediately in cash.
  • By check. The financial organization that issues the loan can send you the loan proceeds in form of a check by fax or by mail.
  • Direct deposit. Lenders that are provided with bank account details and information almost always directly deposit the whole sum of the loan into the account.
  • Prepaid debit card. Borrowers that do not have an open bank account can receive the money on a prepaid card account.

How to repay a payday loan debt?

While the repayment terms might vary, the customer typically will have to make one lump sum payment since payday loans are not installment loans. When signing agreements and obtaining the loan, the borrower practically decides how they will repay the loan. According to Consumer Financial Protection Bureau, the following options are usually available:

  1. Personal check.Writing a post dated check to take out a payday loan is a common practice. It often serves to "secure" a loan and is redeemed only in case of no payment from the borrower. Sometimes, though, the agreement with the lender can include checks as a main payment method.
  2. Automated Clearing House authorization. ACH authorization allows the lender to withdraw the money of the loan and additional fees electronically from your bank account. Alternative options for withdrawal are prepaid card account or credit union account.
  3. With cash. If your payday lender operates a traditional retail store and you filled out the application at the office, you might need to come to the location and pay off your loan with cash.

Payday loans are short term, so their repayment period can be two to four weeks. If you cannot pay the money back on the due date, the lender can offer you to extend the terms or, if that is prohibited, to reborrow the loan. Consumer Financial Protection Bureau has found that 1 out of 4 loans are borrowed more than 9 times, which clearly identifies how financially unreasonable and exploitative payday loans may be.

Pros and cons of a payday loan

When considering a payday loan, following advantages and disadvantages should be taken into account.

Pros

  1. Few requirements. Payday loans have very simple requirements that are easily fulfilled. Anyone over the age 18 with a valid ID and a source of income can be eligible.
  2. Easy access. It usually takes time and patience to apply for a traditional loan. Payday loans, however, can be quickly obtained within 1 working day. Most Online platforms and even some stores offer their services 24/7.
  3. No credit check. Payday lenders do not review your credit history. Because of that, hard credit inquiry doesn't occur, meaning that the borrowers do not risk losing several points from their credit score.
  4. No collateral. Payday loan is an unsecured loan, meaning that there is no asset that serves as collateral. Therefore, none of your personal property is at risk of repossession by the payday lender. Though it is common for the lending company to have access to you bank account, which can be a cause of unexpected money withdrawal.

Cons

  1. High interest rate. The average APR of payday loans is exceptionally high. In certain states it can be as much as 700%. Consumer Financial Protection Bureau found that payday lenders typically charge a 10$ to 30$ fee for every 100$ of the loan amount.
  2. Debt trap. Payday lenders offer to roll the loan over into a new loan in case the customer lacks the ability to repay. Starting with two to four weeks of extended repayment period, the borrower can be sent into years of debt cycle, because additional fees are charged.
  3. Legal issues. If you cannot repay the loan for a long time, your payday lender may take measures in order to get the money back. They can send your debt to collections, which will damage your credit history and likely reduce future borrowing options. Or, in a worse scenario, they can take your case to the court and demand punishment for failing to repay the loan. You may end up with your wage garnished or even imprisoned.
  4. No credit score. Payday loans are not typically reported to credit bureaus, therefore, they will not help you build credit (but can damage it instead, as we mentioned before). There is an exception to this rule in some states: a very rare payday loan can be made an installment loan, which may contribute to your credit score. The conditions of such transition are not defined and it is for now unclear how to make such an operation.

Legal regulation of the payday loan market in the USA

According to Consumer Federation of America, there are three types of states based on how they regulate payday lending: legal, partially legal and illegal.

Legal

There are 32 states that allow high interest payday lending: Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.

The legal grounds are, however, quite dubious. Some states cannot handle state law loopholes that make payday lending possible and other fail to regulate interest rates. For instance, in 2008 in Ohio a vote resulted in capping rates. But the payday business found state laws that authorize lending and simply switched to them.

Partially Legal

Maine, New Mexico and Oregon are the three states which permit lower interest rates and smaller loan amounts, but ban expensive loans. To detalize: Maine limits monthly interest rate to 30%. New Mexico caps APR that is higher than 175% and has the minimum loan time of 120 days. Oregon has also fixed the minimum repayment period but to 30 days and, additionally, has set a 10$ per 100$ loan fee.

Illegal

In 15 states and the District of Columbia have sufficiently restricted payday loans by capping the APR. These measures are meant to fight usury (unfair and excessive lending profits).

Montana, Colorado and New Hampshire have each capped annual interest rates at 36 percent as a result of ballot voting that took place in late 2000-s - early 2010-s.

South Dakota passed a similar ballot in 2016 and limited annual rate for car title, payday and installment loans at 36%.

New York and New Jersey limit loans to 25 percent and 30 percent respectively on the grounds of criminalizing usury.

Arkansas has the lowest annual percentage rate limit of 17 percent.

In North Carolina payday lending was legal for several years, but the authorization laws haven't been renewed due to clearly common debt trapping.

The District of Columbia also retracted its payday laws.

Connecticut, Maryland, Massachusetts, Pennsylvania, Vermont, West Virginia and Georgia never legalized payday lending.

Military service members protection

The Military Lending act of 2007 (extended 2016) states that active-duty service members and their dependants require special conditions of lending. Payday loans are entirely prohibited and for other personal loans a maximum APR of 36% is set.

The real cost of a payday loan in the US.

Payday loan alternatives usually have monthly interest charges, which come in the percentage of the initial loan amount. The case of payday advances is different, because most payday lenders charge fixed fees 0f 10$ to 30$ per each 100$. Such fees can add up to 400% APR on average.

In Texas, for example, lenders tend to charge 20$ per 100$. If you take out a 600$ loan for 14 days, it will cost you 120$ to borrow this amount of money. The annual percentage rate would be more than 500%.

You will pay 120$ if you mange to find the money in the given time period. The chances are high, however, that you would need to extend it. A report by Pew Charitable Trusts states that it usually takes 5 months to pay back a 300$ dollars loan, let alone 600$.

Practically, it is important to consider safer loan alternatives and/or money making methods. For instance, personal loans with an average 30% APR will cost you roughly 4 times less and will typically have at least 3 month long loan term.

FAQ

Can I get a cash advance online?

If you are a credit card holder, you can get a cash advance almost immediately. Other options are payday loan companies and other unsecured personal loans.

How can I make money right now?

You can take out a personal loan (they have lower APR) from a credit union, a bank, a peer-to-peer lender or another financial institution. Or self-handle it by borrowing money from your family/ friends and getting a part-time job.

How do you get approved for a cash advance?

To get a cash advance (payday loan), you need to be an adult with a steady source of income and an active bank account.

Why are payday loans APR so high?

The APR for payday loans is high because it is calculated for a year, and a loan duration typically lasts several weeks.