Payday lending is very popular in the US. According to the Center for American Progress, there are approximately 23,000 payday lenders.
Payday loans provide quick cash to those who can’t afford traditional personal loans from a bank or credit union. In addition, these unsecured high-interest loans are fit for people with bad credit. Their fees are often much higher than what banks charge for similar loans compensating for the high level of risk. The cost is regulated in some states, but in others, it’s not.
Despite facing tough legal challenges, payday lending continues to thrive. This piece will explore all interest rates of payday loans in different states, as well as what payday loans are and how they work.
How Finance Charge and Interest Rates Are Calculated
Studies show that the average payday loan was $375 in 2021. The finance charge is usually between 15% and 20% and could even be higher depending on the lender. So, the finance charge for a $375 loan would be between $56.25 and $75.
The state laws regulate the maximum interest a payday charges. The annual percentage interest rate (APR) is calculated as follows:
- Divide the interest charged by the amount borrowed;
- Next, multiply the result by 365 (days in a year);
- Then, divide that number by the length of the repayment term;
- And finally, multiply by 100.
So, mathematically, the APR calculations on a $375 loan with a 15% finance charge look like this:
- 375 x 0.15 = 56.25.
- 56.25 ÷ 375 = 0.15 x 365 = 54.75 ÷ 14 = 3.91 x 100 = 391%.
For a $20 per $100 borrowed (or 20% finance charge ) on a $375 loan, mathematically it looks like this:
- 375 x 0.20 = 75.
- 75 ÷ 375 = 0.20 x 365 = 73 ÷ 14 = 5.21 x 100 = 521%.
The mathematical calculations above imply that:
- You must pay $56.25 to borrow $375, and the interest is 391% APR.
- If a loan charges $20 per $100 borrowed, your finance charge will be $75 and an interest rate of 521% APR.
Payday Loans Average Interest Rates by State
The average interest rate depends on the state laws. Payday lending is allowed in 32 states—seventeen states have strong caps against payday loans, and seven states have a level of protection against them. Here is a diagram showing the payday loans rates by state.
If not approved for payday loans, there are several alternative ways to get consumer loans. Some options include borrowing from family, friends, or online lenders.
How Payday Loans Work
Payday loans are small-dollar loans that help borrowers fix an urgent financial crisis. The average loan amount is usually between $100 and $500, depending on the state laws. The maximum loan in some states is $1,000.
The borrower usually has to pay back the loan in a single payment within a fixed amount of time, often two to four weeks. The payday lender can withdraw the money automatically from the account when the loan falls due. Alternatively, the lender may receive a post-dated personal check that coincides with the borrower’s next paycheck.
If the borrower cannot repay the loan when due, a rollover may apply depending on the state law. When past due, the borrowed amount attracts extra charges and interest, you may be summoned to court, and your credit score takes a hit.
Requirements and Benefits of Taking Out the Payday Loans
Some of the advantages include:
- Instant cash to fix urgent financial needs. You get quick money that you can use to meet any need like a car repair or utility bills.
- The application process is quick and straightforward. The online loan request form takes minutes. If you meet all the requirements, the lender deposits the amount borrowed in your account the same day or one business day.
- The loan is available to people with bad credit provided they can prove they have a reliable monthly income stream. The lender pulls a soft credit inquiry when you apply, not affecting your credit score or report.
To get approved and meet the requirements, you must:
- Be at least 18 years old
- Be a US resident
- Prove you have a steady monthly income
- Have valid identification documents
- Possess a checking bank account
Conclusion
Finding the right payday lender in your state can be daunting. This platform helps bridge the gap between borrowers and lenders. We help match your requirements with the right lender and provide you with the options to help you get the cash that you need quickly. You can fill out the form and submit your information to apply for payday loans. Then, you will be connected with a trustworthy payday lender in your state. Our system has been working on finding reliable lenders in each state to ensure that you’re in safe hands when you apply for a loan. This is our way of helping people who need help with their financial situation get loans and not be scammed by bad lenders.
FAQ
What Is the Maximum Interest Rate on a Payday Loan?
Typically, these short-term loans have higher interest rates than other types of loans. The maximum interest rate can vary depending on the lender and their terms. In Texas, for instance, the cap can go up to 662% on every $300 borrowed.
What Is the Average APR of a Payday Loan?
The APR ranges significantly, but averages around 300%.
Why Are Payday Loan Interest Rates So High?
A few factors contribute to the high payday loan interest rates. One reason is that these loans are often marketed to people who have difficulty getting traditional loans, such as from banks. In addition, payday loans companies are typically not regulated by the federal government and can charge much higher interest rates than traditional lenders.
What States Are Payday Loans Illegal?
Some states prohibit or restrict payday lending. These states have laws banning usury or excessive interest rates. Some of the states where payday lending is banned include Georgia, Arizona, Arkansas, Columbia, North Carolina, New Mexico.
