Payday loans in the USA are legal in over 30 states and, if you are a US citizen and have found yourself in need of emergency cash because of an unexpected financial emergency or expense, then you may be looking at getting a payday loan online. Whether for car repairs or medical bills, a payday loan can help you get through the month even if you have been refused credit in the past of and if you have bad credit.
However, before you apply for any loan, whether a payday loan or something else, it is important to check that the state you live in actually allows you to apply for payday loans and that it is legal in your state for payday loan companies and lenders to operate. You don’t want to fall into the trap of ending up borrowing money from loan sharks or unregulated and untrusted lenders.
In the US, every state has different laws and statutes surrounding payday lending. This means that you will not always be able to receive the money that you need, even as little as a $100 loan, if your state has made payday loans illegal or if the regulations in your state do not permit payday lenders to operate.
This guide takes you through in which states payday loans are legal and illegal in the US and how you can get your hands on the money you need to cover your expenses.
Where Are Payday Loans Legal in The USA?
Every US state has its own laws surrounding payday loans and this is because it is dependent on how their customer protection office handles high-risk borrowing. Remember that payday loans, cash advance loans, installment loans and other forms of short term loans that you can apply for online are all forms of high-cost-short-term loans (HCSTLs) which always come with higher fees and interest rates as well as APR.
There are however 37 states in the US that allow some form of payday lending and borrowing.
Some of the largest states that authorize payday lending, make it legal to take out a payday loan or multiple loans at the same time. Some of the more famous examples of states where payday loans are legal include:
The largest number of payday loans in the USA are in Nevada, California and Texas. This is because some states have a cap on payday loan interest rates and therefore borrowers cannot take out as much as they may want or need to.
If you want to know whether payday loans are legal in your state, look at your state government website to find out more.
Where Are Payday Loans Illegal in the US?
There are currently numerous states in the USA that prohibit the use of payday lending, which includes being able to borrow money online. These states are:
- New Jersey
- New York,
- North Carolina
- West Virginia
- District of Columbia
Borrowers have protection from high-cost payday lending with rate caps or other prohibitions in fifteen states and in three states there are lower rate caps or longer duration terms for even the most inexpensive loans, which means that whether you need to borrow $1000 or just $200, there will be rate caps to consider in some states.
Am I Eligible for a Payday Loan in My State?
If your state allows payday loans and if payday loans are legal in your state, then you will have to make sure that you, yourself are eligible for a payday loan. There are some criteria you must meet if you want to be able to apply for a payday loan in the US.
You are eligible for a payday loan in the US if you are:
- A U.S. resident
- Over the age of 18
- In steady employment with a stable income
- Earn a minimum of $800 per month ($9,600 per year)
- Possess a valid mobile phone account and number
- Possess a checking account for the loan to be deposited (if approved)
- Able to afford the loan repayments
- Live in a US state that allows payday loans
Do States have Payday Loan Caps in the US?
Yes, some states do have payday loan caps in the US. A payday loan cap is a risk management tool that provides protection against increasing interest rates in certain States. At the same time, the cap maintains the ability to participate in favorable rate movements. There are maximum price caps of 36% in states including Colorado, Montana and New Hampshire.
Federal law also dictates that fees are capped at 36% for payday loans for all members of the military. There is therefore an origination fee of up to 20% of the first $300 loan, plus 7.5% of any amount above $300 loan and a maintenance fee up to $30 per month.
This allows even those with a bad credit rating to be able to afford payday loans, whether in instalments or another type of repayment.
Recent years have seen increasing amounts of states taking action to pass legislation surrounding payday lending or payday loan. As of the 2020 legislative session, 21 states have pending legislating surrounding payday lending and the alternatives to payday loans in the USA.
How Do I Know if a Lender is Legal in My State?
First of all, you should make sure that payday lending is legal in your state. If you know you are in a state where payday loans are illegal then this is a warning sign. You may be talking to a loan shark and this can be dangerous.
Loan Sharks can trap you into a cycle of debt demanding rising interest fees that exceed the state limit. It is extremely easy to find out whether your lender is legal in your state, phone your local government branch and ask them to check out the company you are being offered a loan from.
If you are worried that you have been subject to loan fraud or a scam then you should contact the police or your state attorney immediately and they can help you resolve the situation.