Payday loans are typically loans of small value designed to be used on a short-term basis (usually with loan terms of between 2-4 weeks). The amount you are able to borrow will depend on what state you are in as many locations operate with specific lending caps.
How much can I borrow with a payday loan?
According to data from the Consumer Financial Protection Bureau (CFPB), the average payday loan is $350 over a two-week loan term. However, payday loans can range from as little as $50 to as much as $1,000, depending on state law and the specific lender.
Different states will offer different values as their capped maximum loan amount and there are currently 32 out of 50 states operating with a cap or other form of regulation. The highest caps can be found in Delaware, Idaho and Illinois ($1,000) whereas the lowest caps are in California and Montana ($300). Maine, Wisconsin, Wyoming and Utah do not have a cap in place.
Other states limit the payday loan amount as a proportion of the borrower’s monthly income. For example, in Nevada, lenders are not allowed to provide borrowers with funds that exceed 25% of the borrower’s monthly income.
Payday loans are illegal in Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, West Virginia and the District of Columbia. Therefore, in these states you cannot borrow a payday loan of any amount.
- Payday loans online are typically to fund small amounts in the short term to cover emergency costs
- The average amount of a payday loan is $350
- Certain states have limits on the maximum amount a person can take out for a payday loan
How much do payday loans cost?
Like the maximum loan amount, payday loan costs are also dictated by state laws. Fees can range from $10 to $30 for every $100 borrowed. On average, a two-week payday loan will cost a borrow $15 per $100. Even though that equates to an interest rate of 15%, due to the short-term nature of the loan, the APR will be extremely high (400%). For a two-week loan term, the interest rate is worked out as if it were going to be paid back as an annual rate.
APRs are always disclosed before the loan is taken out and these interest rates are often strictly legislated by state law. These rates can often be as much as 400% or higher, with some states even exceeding over 600%. As a comparison, APR on credit cards tends to be between 12% to 30%.
Should I take out a payday loan?
Payday loans can be good for people who need to cover emergency costs in between paychecks as they provide quick access to money; however, they are an expensive way of borrowing as they come with a higher-than-average APR and can often land the borrower in more debt than when they started.
The average amount for a payday loan is $350, not taking interest rates into account.
What alternatives are there to a payday loan?
If you are looking for money in the short-term but are concerned about taking out a payday loan, there are other alternatives:
Even if you have bad credit, it may be possible to take out a personal loan. There are specialist lenders on the market who provide bad credit personal loans which can help borrowers in a bind to cover emergency payments or consolidate their debts with quick access to cash.
Interest rates for bad credit tend to be higher than the interest rates for an average personal loan, due to the increased risk for the borrow. However, they are still far lower than what you would pay on a payday loan.
Borrow money from family or friends
Choosing to borrow money from friends and family can be an awkward situation; however, it can save you money on high interest rates and help to avoid the perpetual debt cycle of payday loans. Before choosing this option, all involved parties must be clear on repayment with strict timelines. Sticking to this agreement will prevent damaging these relationships in the long run.
Bad-credit credit cards
Borrowers with bad credit are often put off of credit cards as they typically incur a thorough credit check. Credit cards specially designed for borrowers with bad credit will usually require a security deposit which acts as collateral for securing the credit.
While this will not help with your cash resources in the short-term, there are other card issuers who can offer bad-credit credit cards without the need for this security. Cards such as retail credit cards usually come with low credit limits but also less strict credit checks, making it easier to apply for one.