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California:

MAX LOAN AMOUNT

10%

MAX LOAN TERM

15%

MAX FEE RATE

15%

CHARGE: 14-DAY $100 LOAN

0.5%

APR: 14-DAY $100 LOAN

15%

MAX. LOANS AT ONE TIME

5%

 

How Payday Loans Work

Payday loans are short-term cash loans. The idea behind payday loan businesses is to provide short-term stop-gap loans to working customers when an unexpected expense arises between paychecks. These loans vary between $100 and $1000, depending on state laws.

Typically, the borrower writes a check to the lender. The amount includes the total of the loan itself along with the fee for borrowing money. The lender holds onto the check and agrees to cash it after the borrower’s payday or another set date.

In theory, a payday loan can serve as a huge help to those who find themselves in a crunch…but most payday loan interest rates are generally as high as 400%! Many customers are unaware of the financial dangers ahead when entering into the terms of a payday loan, especially since each state has their own laws regarding these loans.

 
 

Qualifications for Payday Loans

Payday loans are often offered to any consumer over 18 who has a bank account, an ID, and a steady stream of income. No credit check or background check is performed. The payday loan process can be completed in as fast as 15 minutes if you meet all of the requirements. Because payday loans are so easy to obtain, they are very attractive to consumers, especially ones with bad credit. However, the high interest rates make them a very dangerous source of quick cash.

 
 

Typical Payday Loan Interest Rates

Interest rates on payday loans vary from state to state. For example, payday loan interest rates are 129% APR in Colorado but 582% APR in Idaho. Why? A large part of the interest discrepancy is due to legal implications enforced by payday loan state laws. A total of 15 states either ban payday loans or cap the interest at 36%, while the other 35 are free to impose interest fees as they please. It is apparent that although there is a high level of competition amongst payday lenders, this does not drive the interest rates down, each lender charges the maximum allowed in each respective state.

Another reason for differentiating APR is the rate at which borrowers default on their loans. Due to the shortened term of payday loans, an average 6% default rate has a greater impact because of the vast number of loans issued. In comparison to other lenders whose general loan term is a number of years, the default rate has little effect on their overall business.

High default rates are merely a symptom of irresponsible lending practices. However, the lenders are not the victims in this system. The lenders are well aware of their default rate; therefore, charging higher interest rates to compensate for it. In other words, borrowers are paying for the high default rates, not lenders.

 
 

So What’s Next?

If you have found yourself in a bad payday loan, don’t worry! We are here to help you consolidate those loans and pay them off more easily. Learn more about us and how we can work with you today!