In recent months, several states have taken steps to limit interest rates on payday loans in an effort to protect consumers from getting into debt with these traditionally high-cost loans. Nebraska voters voted overwhelmingly to limit payday loan interest rates in the state to 36%, while Illinois is currently considering a similar bill. These small loans are available in more than half of the U. S., and during the pandemic, the rate of workers applying for payday loans tripled.
It is important to note that short-term loans are usually repaid in installments, and some lenders may charge high interest rates and service charges. To apply for a payday loan, you may need to write a postdated check payable to the lender for the full amount, plus any fees. Despite their prevalence, payday loans are rarely used by borrowers for discretionary spending, vacation or entertainment. A payday lender will confirm your income and checking account information and give you cash right there in a store or, if the transaction is done online, as soon as the same day.
However, they often charge a high interest rate for immediate credit, sometimes called check advance loans or advance cash loans. Calculated on an annual percentage rate (APR) basis, the same as used for credit cards, mortgages, auto loans, etc., online loans can offer a quick and effective solution to unexpected expenses. It is important to be aware of the risks associated with payday loans. Because of the high interest rate, many people end up owing more than they originally borrowed and don't pay the payday loan.
Unlicensed lenders may use abusive practices to take advantage of borrowers in need. NCSL cannot provide guidance to citizens or businesses regarding payday lending laws and practices.