Payday loans are short-term loans that are relatively easy to get. But they come with very high borrowing costs. Each state sets its own rules and limits for these loans. This article highlights key rights and protections provided by the Florida Office of Financial Regulation, which oversees Florida payday loan providers. But many of the tips in this piece apply to payday loan borrowers living anywhere in the U.S.
Written by Attorney Aan Malahia Chaudhry.
Updated December 1, 2021
If you need some cash to help get you through to your next paycheck, you may be tempted to get a payday loan. These short-term loans are often easy to get, but they come with high borrowing costs and can lead to a cycle of deeper and deeper debt. Given the high costs of payday loans, they often aren’t the best choice. In this article, we’ll highlight other lending and debt management options you can use to avoid payday loan debt.
If you do take out a payday loan, it’s important to review your state’s guidelines before borrowing from a payday lender. Each state sets its own rules for payday loan providers. This article highlights key rights and protections provided by the Florida Office of Financial Regulation, which oversees Florida payday loan providers. But many of the tips in this piece apply to payday loan borrowers living anywhere in the U.S.
Payday Loans and How They Work
A payday loan is a short-term loan for a relatively small amount of money. Many states limit the maximum loan amount. Typically, the limit is $500 or less. Generally, the borrower agrees to repay the loan when they receive their next paycheck or income from another regular source. Payday loans are considered short term because the loan is usually due within two to four weeks, depending on the payday loan agreement.
Unlike other types of installment loans like personal loans, payday loans are easy to qualify for. Lenders generally require that you have an active bank account, proof of income, and a valid ID. Most lenders will not check your credit score or credit report. When the loan is made, the borrower typically provides the lender with a post-dated check for the full repayment amount. This includes the costs of borrowing, such as fees and interest.
If you take out a payday loan from an online lender, you’ll typically give the lender your bank account information. Instead of giving the lender a post-dated check, you’ll usually authorize them to electronically withdraw the loan amount and fees on an agreed-upon date — usually your next payday.
While payday loans are easy to qualify for, they almost always come at a very high cost. Many states limit the maximum fees lenders can charge for these loans. For instance, a state may limit the fees to be $20 for every $100 loaned. Still. It’s not uncommon to see payday loans with an APR of 200%-500% or higher.
Florida Payday Loans
Each state sets different rules for payday loans. It’s important to review your state laws before borrowing. This section reviews Florida’s specific payday loan laws. Statistics from the Florida Office of Financial Regulation (OFR) show that 5.7 million payday loans were made in Florida in 2020.
The OFR's Division of Consumer Finance provides regulatory oversight of payday loans and payday lenders. Payday loan lenders are also known as deferred presentment providers. To operate as a business in Florida, payday lenders must be licensed by the OFR. This means that if you’re borrowing from a payday lender, you should verify that they have a license. This is especially important if you are dealing with an online lender, as it can be difficult for the OFR to resolve any potential problems if the lender is not licensed and registered in Florida. To verify a license or to file a complaint, you can visit the OFR website or call (850) 487-9687.
Florida borrowers have certain protections under Florida law. If you plan to borrow from a licensed Florida lender, you should review your rights and protections. Here are the relevant rules and regulations:
The amount of the loan cannot exceed $500.
You’re only allowed to have one outstanding payday loan at a time. A statewide database tracks all payday loans to ensure borrowers only take out one loan at a time.
Once a loan is paid back, there is a 24-hour cooling period before you can take another payday loan. This period allows borrowers to pursue alternative and less costly borrowing options.
The length of the loan term can't be less than seven days or greater than 31 days. The loan term is set at the time of the agreement and it can’t be rolled over. This means that the lender can’t extend (rollover) your loan for more days and charge you additional fees for those days.
If you’re unable to pay the loan back, you may extend the loan term without incurring additional charges or fees. The lender is required to provide a 60-day grace period without charging additional fees. To take advantage of this grace period, you have to inform the loan provider (before the due date) that you’ll be unable to pay the loan in full and that you’ll be taking a grace period. Then, within seven days, you must make an appointment with a consumer credit counseling agency to complete consumer credit counseling.
The maximum fee that a lender can charge is 10% of the borrowed amount. This means that for every $100 you borrow, you’ll be charged up to $10. Additionally, a lender can charge a $5.00 verification fee on top of this 10% cap.
The loan agreement can’t contain certain contractual terms that limit your rights. For instance, an agreement can’t contain a term that waives your rights under the law or holds the lender harmless for damages or actions.
The lender must provide you with a signed copy of the agreement.
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Pros and Cons of Payday Loans
If you’re dealing with a financial emergency and need funds quickly, payday loans may be your only option to successfully navigate a bad situation. But you should only consider payday loans as a last resort because of the extremely high cost of borrowing. Even with Florida's limits on payday loan fees, the interest rates are extremely high. For example, if the fee to borrow $100 is $10, then that fee is equivalent to 260% APR (annual percentage rate). By comparison, credit card APRs range from 10% to 30%.
Payday loans’ high borrowing costs can create a cycle of debt. Though you’re taking out a relatively small amount of money, it comes with a short repayment term and very high interest. This makes it impossible for many borrowers to repay the loan on a tight budget in a short time frame.
Consider Alternatives to Payday Loans
While payday loans may be easy to get, they are costly. This is why it’s important to consider alternative solutions before you take out a payday loan. Some of these options include:
Delay payments or make alternative payment arrangements on bills that don’t have interest. You can contact providers whose bills don't accrue interest, such as your phone or utility company, and ask about delaying your payments or making alternate payment arrangements. By delaying these payments, you can use your income in ways that may help you avoid taking out a new loan.
Ask friends or family for a loan. This may be difficult to do, so you can suggest drawing up an agreement to reassure your family or friends that you will pay the money back. Since such loans involve personal relationships, it’s important to make sure that both parties are comfortable with the terms of the loan agreement.
Ask your employer for an advance on your paycheck. Some employers may ask you to explain exactly how the advance will be repaid, such as by withholding a percentage of future paychecks.
See if a nonprofit organization can help. You can set up a meeting with a nonprofit credit counseling agency to help you manage your debts and improve your financial situation. These agencies can assist you with budgeting, credit repair, debt repayment, and loan consolidation. Upsolve can help you find an accredited nonprofit credit counselor.
Consider a low-interest credit card. If you have a decent credit score, you may be able to get a low-interest credit card. Credit card APRs are much lower than payday loans.
If You’re Already Struggling With Payday Loan Debt
Financial shortfalls often happen unexpectedly. This is why it’s important to budget and set aside money each month for future emergencies. Save as much as you can every month, even if it's just $5. This establishes a habit of saving, and your efforts will add up over time. You can also learn about debt repayment strategies, such as the debt avalanche and debt snowball methods, which can help you tackle outstanding loans.
Additionally, if your credit score is poor it will affect your ability to get loans or qualify for low-interest rate loans moving forward. If this is the case, work on repairing your score. Even a slight improvement can open up more financing options. This can greatly reduce the stress and cost of financial emergencies.
If you’re currently struggling with overwhelming debt, including payday loan debt, you may want to consider filing for bankruptcy. When you file bankruptcy, the court issues an automatic stay that bars creditors from collection efforts. There are two types of bankruptcy you may want to consider:
Chapter 7 bankruptcy usually takes four months to complete from the date you file your case. Most unsecured debt will be erased through a bankruptcy discharge. This includes payday loans as well as credit card debt and medical debt.
Chapter 13 bankruptcy reorganizes your debts and creates a manageable 3-5 year repayment plan. At the end of the repayment plan, eligible debts are discharged.
If you’re planning on filing for bankruptcy, it is generally a good idea to wait 90 days from your last payday loan before filing. This is because lenders can object to the discharge of the debt if it was taken out within 90 days of the bankruptcy filing. If the lender objects, the loan may not be discharged with the bankruptcy.
Payday loans are short-term loans that are relatively easy to get. But they come with very high borrowing costs. Each state sets its own rules and limits for these loans. Floridians benefit from the state’s payday loans rules, which are regulated by the state's Office of Financial Regulation. Those rules set the loan limit to $500 and limit fees to 10% of the amount borrowed.
Due to payday loans’ high fees, these should be a last resort. If you need some financial help to tide you over during a rough patch, you have alternatives. Consider these if you need some cash fast but want to avoid taking out a payday loan.