Ever wonder why some states have strict laws regarding payday loans? Most states have some form of payday loan legislation to protect lenders and borrowers and keep the industry fair. Payday loan laws usually regulate interest rates, loan amounts, and payment plans to make these convenient loans more accessible to consumers.

Interest Rate Regulations
All states have differet regulations regarding payday loan interest rates. Some states cap interest at a certain dollar amount per $100, like $10 per $100 borrowed. Other states impose graduated fees based on the dollar amount borrowed: $20 for the first $100, $15 for the second $100, $10 for the third $100, and so on. Still other states that legalize payday lending cap lenders at a percentage of the loan amount, like 20% of the total amount borrowed. Some states like Rhode Island impose very strict annual interest rates at 36% or less. Rhode Island has the lowest interest rate cap in the country at 28% annual interest. They also have the lowest number of payday lenders, which hurts consumers by taking away their financial choice.

Loan Amount Regulations
Many states limit the amount of cash that payday lenders can offer to $500. Some states allow lenders to provide loans up to a certain percentage of a customer’s income, while a few states don’t impose any restrictions at all.

Regulating loan amounts is meant to benefit consumers, protecting them from borrowing more cash than they can afford. Payday loans are designed as small, short-term loans, not meant to exted past the customer’s next paycheck. Writing laws to keep loan amounts small – at $500 or less – ensures that consumers won’t abuse the loans that payday lenders provide.

Payment Plan Regulations
Plenty of states that legalize payday lending ban rollovers, as they’re often seen as debt traps that do consumers more harm than good. Many states require lenders to offer some kind of installment plan in addition to full payment and rollover options.

Make sure you know and understand the payday loan laws in your own state before borrowing a cash advance of your own.

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