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Are Payday Loans Legal in Illinois?


Payday loans in Illinois are legal and if you need money fast, particularly if you are looking to find loans online, you may well be able to apply for one in the state. Although they are banned across numerous states in the US such as New York and Arkansas, Illinois does allow payday lending within its state borders. However, this form of lending does come with some restrictions and strict regulations.

In 2021, the Illinois State Government and the Illinois Attorney General implemented laws to regulate the personal loan industry, to help ensure only those who are right for these loans can receive them and that borrowers and prospective borrowers avoid falling into an unmanageable cycle of debt. 

How Does Borrowing a Payday Loan in Illinois Work?

A payday loan is a small loan, usually given up to the value of a $500 loan or perhaps even $1,000 or a little more. These loans typically have a short repayment period of usually two to four weeks, although some may have a maximum of a 120-day repayment period. This type of loan very often is accompanied by higher than normal interest rates and other fees, such as when a payment is missed and some lenders may charge arrangement fees too.

A payday loan can be an ideal option for people facing a financial emergency, and in cases where cash is needed fast to overcome a pressing bill or unexpected but urgent cost, as the application process is straightforward and loans are often often approved on the same day. The reason why payday loans are so popular among Americans, with approximately 12 million people using them annually, is because there are many options for the specific loan amount as well as use of the loan. These loans can be applied to a number of different circumstances, with emergency cash loans and cash advance options being popular across the State of Illinois and the USA more widely.

What Types of Payday Loans Are Legal in Illinois?

Illinois is one of several states in the US that have strict regulations regarding payday loans, which were implemented to protect consumers and borrowers against hefty repayment schemes that burden many borrowers. Alike Arizona, Colorado and Nebraska, Illinois has a capped interest rate of 36% on payday loans, among other personal loans, in comparison to states such as Texas and Nebraska which are known to have higher interest rates that can exceed 500%, in comparison to the more restricted interest rates applied to payday loans in Illinois

Due to the strict regulations, Illinois, has a repayment period of between 13-120 days and for an ‘instalment payday loan,’ it is no less than 112 days and no more than 180 days (depending on the agreement between the lender and loan holder). 

What Are Illinois Payday Loan Regulations?

In 2021, the governor of Illinois, J.B. Pritzker approved a bill called the Predatory Loan Prevention Act, that capped payday loans at 36%- joining other US states in the move toward protecting consumers, more precisely, low-income earners who rely on fast cash for emergency situations. Illinois saw an average of 297% annual percentage rate for payday loan borrowers prior to the Act. Under this new legislation, a person who has been in debt for more than 35 days has the legal right to enter into an interest-free repayment plan- however, this only applied to payday loans and not payday instalment loans. 

Data taken and simplified from the National Conference of State Legislatures states the regulations for an Illinois payday loan are as follows:

Legal Status: Legal

Interest Rate: Capped at 36%

Maximum Loan Amount: $1,000 (or a maximum of 25% of the gross monthly income- whichever one is less)

Minimum Loan Term: 13 days

Maximum Loan Term: 120 days

Number of Rollovers: 0

Number of Outstanding Loans: 2

Cooling-off Period: 7 days after 45 consecutive loan days

Instalment: Yes

Finance Charge: $1 verification fee. A fee can not exceed $25 for insufficient funds

Who Can Apply for a Payday Loan in Illinois?

There is not an overly complicated criteria list to qualify for a payday loan in Illinois, however, the following criteria must be met:

  • Be at least 18 years of age or older
  • Be a citizen of the US, or be a permanent resident
  • Have proof of a current residential address
  • Have a savings or checking account

What Are The Benefits?

Like any personal loan, there are always clear benefits, however, a payday loan can offer financial security to a person who otherwise might not have access to fast money. The process is very user-friendly and you can apply for one online or in person with a payday loan lender, and have it approved in a few minutes. This is a clear benefit for anyone facing financial troubles due to an emergency situation, for example having to fix a broken-down car or pay a sudden medical bill. 

What Are the Disadvantages?

Just like a credit card or any other type of personal loan you might consider taking out, a payday loan should be reviewed and well-understood before starting the application process. The downside one might face with a payday loan is struggling to repay the debt on time, as the repayment period is very short. This will then result in hefty late repayment fees and have the borrower pay much more than originally expected and have to suddenly evaluate their financial situation again.