What Is A Payday Loan?
A payday loan is a short-term loan made by a payday lender. By short-term, I mean the loan will usually be due in full by the next payday. The amounts involved are usually relatively small, less than $1,000.00. California law regarding payday loans will be discussed later.
These loans then are primarily for someone who needs cash fast, such as for a car repair or medical expense. The lender does not check your credit but obviously wants to know that you are employed and have a bank account.
The payday lender will insist that you leave a post-dated check for the balance or authorize a bank debit for the balance which will automatically occur on the loan’s due date, which is your pay day.
Payday Lender Fees
The payday lender will charge a fee or finance charge on this payday loan. As an example, you are short on cash and need a $300 dollar loan. The lender may charge you as much as $45.00 dollars for the loan which may be due in only two weeks. Note that in the above example the $45.00 dollar fee is equivalent to annual fee of $1,080.00 dollars (if charged every two weeks).
But most payday loan borrowers will not be thinking about this calculation. Usually, they need the money for an emergency, there being no emergency savings fund. In this way, payday loans are, therefore, seen as a form of emergency savings.
California Regulations For Payday Loans
California law has many restrictions for payday loans. In California, a payday loan cannot exceed $300.00 dollars. A payday lender can only charge a maximum fee of 15% of the amount of the loan, not to exceed $45.
Under California law, a payday lender cannot allow you to grind, take out a new loan to pay off your current loan. This is true even if the existing loan and the new loan would not exceed $300.00 dollars. A payday lender may only charge you one bounced check fee of up to $15.00 dollars. A payday lender may not threaten to prosecute you in criminal court for a bounced check for insufficient funds.
Unlike others who would tell you to get a “side gig” employment , or to sell you household goods, I would offer that you may be better off with a trained credit counselor who will help you manage your money and get you out of debt. You may contact www.nfcc.org/ to find a credit counselor in your area.
In the San Francisco area, we recommend Consumer Credit Counseling Service of San Francisco, www.cccssf.org/. Note that we do not recommend any other credit counselors in the Bay Area.
These credit counselors may help you develop a payment plan for your creditors. They may also recommend ways for a better credit score.
In the alternative, you may consider a bankruptcy. Learn more about Payday Loans and Bankruptcy. Payday loans may be discharged in either Chapter 7 or Chapter 13.