Alternatives to a payday loan
If you need emergency cash, but cannot qualify for a payday loan, there are several alternatives. You can borrow money from family and friends, shop around for lower-cost credit cards, and inquire about advance payments from your employer. You can also call your state or local government to ask for financial assistance.
Payday loans are notoriously expensive. Most payday lenders will give borrowers just two weeks to repay the entire amount. However, the odds of making the full payment are extremely low. In addition, defaulting on the loan agreement can result in late fees and an additional finance charge. Payday loans can become a vicious spending cycle, so you should try to find a less costly option.
Fees and interest rates
Fees and interest rates on a payday loan line of credit are often a mystery, and payday lenders are often reluctant to discuss them. Interest rates can quickly climb into the triple digits. A $200 loan can balloon to $500 in 20 weeks. While payday lenders aren’t likely to disclose their triple-digit interest rates, you should expect to pay about $15 to $20 per $100 borrowed.
Although payday loans can be extremely convenient for emergencies, they can be extremely expensive. A recent study by the Center for Responsible Lending revealed that borrowers paying for these loans paid an average of $459 in interest over the course of the loan. This compares to an average of $13 in fees and interest for a similar loan from a credit union or bank. Consumers should also be aware that payday loans often carry higher interest rates than credit cards.
Maximum line of credit amount
Unlike a payday loan, a line of credit allows you to borrow up to the maximum line of credit amount. This amount is determined by state law and is based on your ability to repay the loan. LOCs can be extended for many purposes, including paying off large bills, home improvements, and large purchases.
State laws that regulate line of credit amount
While payday loans may be legal in many states, the amount of money you can borrow can vary greatly depending on the state’s laws. The federal government has set minimum requirements for consumer protection, but state laws may vary slightly. To ensure the maximum amount you can borrow, it is best to visit the office of the state’s small loan regulator to find out more about the laws that govern small loans in your state.
In addition to lending limits, many state laws regulate the maximum number of loans that can be made at a time. These laws limit the number of loans that can be held open at a time and set fees that lenders can charge. Some states have strict regulations that prohibit rollovers, while others are less restrictive.