A:

Georgia is the only state where high-cost payday loans are expressly prohibited under racketeering laws. In 2014, several states limited the feasibility of payday loan businesses by enforcing small-loan caps that range between 17% and 30%. There are 32 states in which payday loan companies are free to charge triple-digit annual interest rates. Many states have specific legislation, while others have none.

New York limits annual interest rates to 25% under criminal usury statutes. New Jersey sets a maximum interest rate of 30% under legislation for all lenders. Arkansas has a 17% limit on interest rates on all loans. Arizona limits loans to 36% annually plus a 5% fee. Connecticut limits loans to 30.03% with some allowable add-on interest. Maryland caps interest rates at 2.75% per month or 33% per year. In Massachusetts, the limit is 23% plus a $20 administration fee. North Carolina limits lenders to charging 36% annually. Pennsylvania defines its cap as $9.50 per $100 per year interest plus a charge of $1.50 per $100 per year. Vermont has a limit of 18% per year. West Virginia limits lenders to charging 31% per year for loans of $2,000 or less. The District of Columbia mandates a 24% cap annually to lenders.

A payday loan involves being given a specific amount of cash, often in exchange for a post-dated check made out for an amount higher than the check. For example, a borrower would make out a check for $115 if borrowing 100, and this equates to over 390% per year. Borrowers with payday loan companies are not required to present collateral or have any assets. Payday lenders take on risk by lending to people based on their word that they will honor a check, and the business is not profitable or feasible unless lenders are permitted to charge exorbitant lending rates. Consumers are often puzzled as to why a practice could be heavily controlled and subject to racketeering laws in some states and permitted in others.

Maine allows check-cashing loans that charge up to 30% annually with additional fees allowed. Oregon allows up to 36% to be charged plus an additional $10 per $100. New Hampshire has a cap of 36% yearly. Ohio limits payday loan lenders to charging 28% each year. Montana has a limit of 36%. Colorado allows lenders to charge 52-65% per year, depending on loan size.

There are 32 states where payday loans are legal and lenders may charge triple digit annual interest rates or have no rate limit at all. They include: Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and Wyoming.

Bank of America currently offers a home equity line of credit with an introductory rate of 1.99% and regular variable rate of 3.73%. Credit cards typically charge 11.99-21.99%. Paying triple-digit interest rates when other options may be available could prove to be a costly decision.

RELATED FAQS
  1. What is the difference between an in-store and an online payday loan?

    Learn important differences between online and in-store payday loan companies. Explore different charges made by companies ... Read Answer >>
  2. Do payday loans hurt my ability to get a mortgage?

    Find out whether taking out a payday loan could harm your chances of being approved for a mortgage and how lenders find out ... Read Answer >>
  3. Are APRs different in different countries?

    Learn about the term APR and how it is used in the United States and other countries. Explore why different lenders charge ... Read Answer >>
Related Articles
  1. Personal Finance

    Payday Loans Don't Pay

    Hold too tightly to this rescue line and you'll soon be drowning in debt.
  2. Personal Finance

    Beware of Guaranteed Payday Loan Websites

    Payday lenders generally should be approached with caution; but online payday loan websites are better avoided altogether.
  3. Personal Finance

    Title Loans vs. Payday Loans: Which Are Better?

    Both title loans and payday loans carry risks that outweigh the benefits.
  4. Personal Finance

    3 Tips For Using Payday Loans

    With payday loans now operating across 41 states, we tell you how to use them wisely and responsibly.
  5. Insights

    Google Bans Ads for Payday Lenders (GOOG, GOOGL)

    Beginning in July, Google will ban lenders that charge annual percentage rates higher than 36%, since "these loans can result in unaffordable payment and high default rates for users."
  6. Personal Finance

    States That Allow Car Title Loans

    Only some states permit car title loans – and those that do may have restrictions. Check this list to see what to expect.
  7. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  8. Personal Finance

    The 4 Worst Ways To Borrow Money

    While there are less risky places from which to borrow, there are also predatory lenders who can make your financial situation worse than it was to begin with.
  9. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  10. Personal Finance

    4 Signs You're Headed For Financial Trouble

    These four situations that should set off alarm bells.
RELATED TERMS
  1. Temporary Lender

    A mortgage lender that sells the loans it originates into the ...
  2. Lender

    Someone who makes funds available to another with the expectation ...
  3. Closed-End Credit

    A loan or extension of credit in which the proceeds are dispersed ...
  4. Origination Fee

    An up-front fee charged by a lender for processing a new loan ...
  5. Locked-In Interest Rate

    Referring to a loan where the borrower and lender agree on a ...
  6. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
Trading Center