Payday Loans

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Payday loans are also referred to as a pay check advance or payday advance. These are small short term loans designed to cover expenses until payday. These loans are also sometimes called cash advances although this term also describes drawing cash from a credit line or credit card. There are varying legislations regarding these loans between different countries and also from state to state within the USA.

Requirements to Get a Payday Loan:

All a consumer needs to get a payday loan is an open bank account in relatively good standing, a steady source of income, and identification. Lenders do not conduct a full credit check or ask questions to determine if a borrower can afford to repay the loan.

Many states have imposed strict usury limits (the amount of interest that can be charged on a payday loan) limiting the annual percentage rate (APR) of interest that can be charged. Some states have banned payday loans completely while others have few if any restrictions. When looking at interest rates of any loan you need to be sure of how the interest is being calculated. APR (annual percentage rate) and EAR (effective annual rate) are very different as EAR takes compounding of interest into account. Compounding is when interest is added to the principal owed usually on a daily basis This means you would be paying interest on yesterdays interest as well as the principal.

Retail Lending:

This is when a borrower visit’s a payday loan store and receives a small cash loan with payment usually due in full when the borrower receives his or her next pay check (often up to a two week term). These type of loans in the United States usually carry finance charges of between 15 and 30 percent based on that two week term. This can translate into rates ranging from 390 to 780 percent when calculated as an annual percentage rate (APR). The customer will often be required to provide a post dated check to cover the loan and related expenses or provide some other method of payment or security. In the event that the loan is not repayed on time the borrower may face add on expenses such as fees for NSF cheques etc.

The Consumer Federation of America says states such as: Connecticut, Georgia, Maine, Maryland, Massachusetts, Michigan, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia, have usury laws or small-loan rate caps that would make payday lending illegal under the rates usually charged. That doesn’t necessarily mean that payday lending doesn’t exist in those states. Consumer advocates say regulation is very uneven and payday lenders are often able to circumvent state laws.

Below is a state by state breakdown of Payday Loan Laws (if applicable)

Loan Information by state:

State    Fee/interest cap    APR for $250    Loophole

  1. Alabama    17.5% of loan    456%
  2. Alaska    $15 per $100 +$5    443%
  3. Arizona    15% of check    460%
  4. California    15% of check    460%
  5. Colorado    20% 1st $300 7.5% >$300    521%
  6. Delaware    No Cap    No Cap
  7. Florida    10% of loan + up to $5 verification fee    342%
  8. Hawaii    15% of check    460%
  9. Idaho    No Cap    No Cap
  10. Illinois    $15.50/$100    404%    Loans over 120 days: No Cap
  11. Indiana    15% 1st $250 13% $251 to $400 10% $401 – $550    391%
  12. Iowa    $15 1st $100 $10/$100 thereafter    358%
  13. Kansas    15% of loan    391%
  14. Kentucky    15% of check    C460%
  15. Louisiana    16.75% of check Up to $45 + $5 doc fee    521%
  16. Michigan    15% 1st $100 14% $101-$200, 13% $201-$300, 12% $301-$400, 11% $400-$600 + fee    375%
  17. Minnesota    7% of loan +$5 fee    235%    Industrial Loans: No Cap
  18. Mississippi    18% of check    572%
  19. Missouri    Max 75% of loans    1,955%
  20. Montana    25% of loan    652%
  21. Nebraska    $15 per $100 ck    460%
  22. Nevada    No Cap    No Cap
  23. New Mexico    $15.50/$100 +  $0.50 per $100 fee    409%    Installment Loans:No Cap
  24. North Dakota    20% + fee    520%
  25. Oklahoma    $15/$100 1st $300 $10/$100 for $301-$500+fee    396%
  26. Rhode Island    15% of loan    390%
  27. South Carolina    15% of check    460%
  28. South Dakota    No Cap    No Cap
  29. Tennessee    Lesser 15% of ck Or $30 max.    313%
  30. Texas    $10 + 48% annually    156%    Credit Services Org.: No Cap
  31. Utah    No Cap    No Cap
  32. Virginia    20% of loan +36% Annual interest + $5    610%    Open end line/No Cap With car title as security
  33. Washington    15% 1st $500, 10% if $500 to $700    390%
  34. Wisconsin    No Cap    No Cap
  35. Wyoming    20%/mon. or $30 fee    313%

Interest rate is the percent charged, or paid, for the use of money. It is charged when the money is being borrowed, and paid when it is being loaned.Interest is paid by a bank when money is deposited because the bank uses that money to make loans. The bank then charges the borrower a little more for that same money so it can make a profit for its service.

When interest rates are high, fewer people and businesses can afford to borrow, so this usually slows the economy down. However, more people will save (if they can) because they receive more on their savings rate.

When the central banks set interest rates, such as the U.S. Fed Funds rate, it is the amount they charge other banks to borrow money. This is a critical interest rate, in that it affects the entire supply of money, and hence the health of the economy.


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