Choosing Financial Freedom

Payday Loans - Regulations That Protect You From Outrageous Debt

14 July 2016

Aubree Mccoy

If you find yourself in an emergency situation that eats through your savings and leaves you with no money left over, then you may be in a bind until payday comes along. If you are worried about paying your bills late and accruing late fees, then you should consider a short term loan. Payday loans are short term loans that may meet your needs. Some people shy away from these loans due to high interest rates and large fees. However, you should know that the loans are regulated by the government. Keep reading to learn about how some of these regulations that help to make sure that you are able to pay back the loan in a timely manner.

Interest Rate And Fee Caps

Payday loans are short term loans that are meant to be paid back in full within a short period of time. In some cases, the payday lender will give you a repayment schedule to follow. However, some businesses ask you to draft a personal check that is postdated a few weeks or more in advance. You may also need to provide electronic access to your bank account. Generally, interest rates are added into the payment. 

Interest rates for payday loans used to be incredibly high, and some companies may have charged 500% interest or more on each loan. However, many states now have very specific regulations and terms that must be followed when a payday loan is issued. Specifically, most states have interest rate caps. For example, Alabama has set a 17.5% interest rate on payday loans, and California and Kansas have a 15% interest rate maximum. 

While most states have fairly straight forward interest rate laws, some are a bit more complicated. Indiana, for example, allows for different interest rate charges based on the amount of the loan. Interest rates must drop if more money is borrowed so that individuals do not have to pay large fees. In Indiana, you may be charged 15% interest for a $250 loan, but only 10% for a $400 loan. 

Most payday loan companies are more than willing to follow state regulations, since hefty fines can be issued if the laws are not followed. However, you should contact the Department of Finance or the Consumer Financial Protection Bureau in your state before applying for a loan so you are well aware of the interest rate maximums and laws set by the state. 

Limited Debt Rollover

If you are unable to pay back the initial payday loan in time, then you may be able to extend the lending period. The term extension is often the same time period as the initial loan. For example, if you roll over a payday loan that was supposed to be paid back in 30 days, you will typically have another 30 days to pay the loan in full. This is called rolling over the debt. If you decide to roll over the payday loan, then you will need to pay a fee. However, this fee does not reduce the loan in any way. You will need to pay the fee and also the entirety of the loan. If you find yourself low on cash every month, then you may end up making absolutely no progress on loan repayment, but you will be spending cash on fees to extend the loan.

Loan rollovers can leave poor or financially unstable people in a cycle of debt that continues for a long period of time. To reduce this issue, many states regulate the number of debt rollovers that are allowed. Some states, like Michigan, Minnesota, and California, have outlawed the practice altogether, while other states only allow for a single rollover.

Not only does the limit on rollovers prevent a debt cycle, but they encourage payday lenders to work with individuals to come up with repayment plans that allow the loan to be paid down within a timely manner. 

For more information about receiving a payday loan, check out websites like http://www.paydayexpresscashadvance.com.

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