Recently, a number of states have moved their cap for the interest rates of payday loans. This has been done in an attempt to help protect the loan’s consumers from struggling or becoming too overwhelmed with repayments – this type of lending traditionally having a bad reputation as high-cost.
There are price caps for payday lending across the US, with many Nabraska voters calling for a cap on payday loan interest rates throughout the state to 36% last November (2020), while this January, Illinois also passed a bill to cap consumer loan rates (including payday loans) at the same 36%.
However, it’s important to note that not all states cap payday loan interest rates the same. In February 2021, CNBC reported the following states as having their payday loan interest capped at 36% or lower:
- New Hampshire
- New Jersey
- New York
- North Carolina
- South Dakota
- West Virginia
For other states, the interest can be substantially higher than this cap.
Why Is There a Price Cap for Payday Lending Throughout the US?
Price caps have been placed on US payday loans to help prevent borrowers from becoming in over their heads with management of such loans.
Payday loans are traditionally high-cost, and have developed a bad reputation in recent years. Some claim that this is down to the lack of regulation throughout certain US states, which led to companies practicing at questionable, and incredibly poor standards – overcharging their borrowers and not being clear enough regarding loan repayment fees.
Thankfully, in 2021, this industry has undergone significant improvements, with strong regulations having been put in place in such US states as follows:
- And more…
Many lenders now are required to hold stricter practices when lending, helping to protect their borrowers and preventing the poor, damaging standards of the past from being repeated.
Payday Loans – What to Consider
When wanting to take out a payday loan, there are a few important things to consider – the cap on lenders’ interest rates in your state being one.
As previously mentioned, there are a few states that have introduced interest caps for payday loans at 36% or lower. However, it’s important to check the cap that applies to your state, and therefore that which will apply to any payday loan you take out in this state.
It’s also important to check that the state you are wanting to take the payday loan out in actually enables you to take out the amount of money you wish to borrow, and for the length you wish to borrow it for.
Another vital thing to consider with payday loans is whether you need to take one out. Payday loans, as their name suggests, are traditionally known for being used by those who need access to cash before their next payday arrives. They are also known to be taken out during unexpected emergencies, and should never be used as a long-term solution to deeper financial issues.
Payday loans are intended as a short-term means of borrowing money, that borrowers know they can afford before taking them out – and should be kept as such.