Are Payday Loans Legal?
If you’ve ever wondered about why payday loans don’t require you to wait in long lines or prepare a hefty stack of documents and are available online, then this article is for you. Keep reading to clear all your questions about payday loans’ legality.
What Are Payday Loans?
Payday loans, post-dated check loans, or cash advance loans are small amounts given to a borrower who needs them for necessary expenses. These loans often don’t go beyond $1000 (depending on where the borrower lives). This is because a payday loan’s amount is relatively connected to what a person receives on the payday. Payday loans are named so because they are expected to be paid once the borrowers receive their paycheck.
Why Apply for Payday Loans?
Payday loans are for urgent matters or emergency expenses. These can include rent, utilities, car payment, and other costs an individual failed to pay on time.
Are Payday Loans Legal?
Because of the high interest that comes with payday loans, its legality has been a subject of discussion for many. So, are payday loans legal? The answer is: it depends on where the borrower lives, the existing laws in that area, and the manner by which the payday loan is acquired and is required to be paid.
Payday loan lenders often ask for $15 – $20 interest per $100 loaned to a borrower. There will be no problem if the client can pay the loan on time. The complexity of this type of loan only comes into the picture when new fees are added. This scenario only happens upon the failure of the borrower to pay on time and as per agreement.
This practice makes many wonder how payday loans can be considered legal. Some even ask if it’s not the same as usury or the act of asking for unreasonably high interest rates.
Payday loans legality changes depending on the jurisdiction. Under these varying laws come different requirements or provisions for the loan to be legal as well, such as making a post-dated check or access to the borrower’s bank account. Payday loans’ nature is similar to that of pawning businesses.
There are currently 21 states that have pending legislation involving payday lending. But payday lending is not constructed to feed a predatory institution. Most locations that approved and legalized payday loans did so to have accessible fundings that they can use during emergencies. These places also have limits and specifications regarding the amount, interest rates, and approach to which payday loans are handled, so no one’s finances are abused.
If you plan to apply for a payday loan, all you have to do is follow the lender’s rules and the jurisdiction you’re under. What’s important, like with all the other loans, you just need to pay your credit on time.