State Regulations and Personal Loans

When taking out a personal loan, there are a multitude of important things to pay attention to. One of the most overlooked factors is regulation on personal loans, which will be different depending on the state one lives in. Regulation can deviate drastically from state to state, so for example, it is vital that even if a website or a commercial says that you can borrow up to a specific amount of money, your state may have a restriction on this. Take the time to learn what the regulations are in

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Interest Rates

When it comes to interest rates, some states are more stringent than others. For example, Ohio recently enacted a very strong usury law, making the maximum legal interest rate on loans less than $100,000, just 8%. However, they do have a few exceptions, such as if the loan amount is greater than $100,000 or if it is a demand note and unsecured. Contrast this with Rhode Island, who has a maximum legal interest rate on loans of 21%, or 9% above the Wall Street Journal listed prime rate. Beyond that,South Carolina doesn’t even have a limit.

Usury laws are quite different from state to state, so make sure you understand what your rights are before signing any legal documentation. The last thing you need to do is pay extra interest when it isn’t even legal to begin with!

Discrimination Laws

The Equal Credit Opportunity Act is the federal law that prohibits discrimination in any aspect of a credit transaction, such as race, gender, or religion. While there is the federal law mentioned, there are also various state laws around the country that go beyond this. If the applicant exercises good faith, it is illegal to discriminate beyond credit worthiness.

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Payday Loans

One of the least desirable personal loans is a payday loan. However, there are times when you need just a little bit of money and they can be helpful as long as you don’t find yourself in the never-ending cycle of borrowing against your next paycheck. Obviously,state statutes will vary greatly on these loans, and the gap is far and wide between states. For example, Arizona and Arkansas both completely prohibit payday loans. You cannot get this loan type in those states, mainly as result of the exorbitant interest rates and the fleecing of the poor that this industry has been accused of.

Other states aren’t quite as stringent. For example, Delaware allows these loans up to$1,000, but for no longer than 60 days. Kansas is right in line with most states, allowing a payday loan of $500. This seems to be the generally accepted amount from state to state, but some states, such as Illinois, will be based upon a certain percentage of your monthly income.

There’s also a push within the industry to vet borrowers more clearly, checking out their income, living expenses, and major financial obligations, such as a mortgage or a car loan. In some cases, this means pulling a credit report, something that was not required in the past. However, if the loan is for less than $500, this generally doesn’t apply.There is also an industry push to limit the number of loans that a person takes out. That is, if one takes out three payday loans in succession, lenders are required to cut the borrower off from any further funding for at least 30 days.

Longer-term Loans

There are also provisions per state involving installment loans. For example, a $2,000 two-year loan in 33 states and the District of Columbia now cap the annual percentage rate at 36% or less. There are six states that have no cap on interest rates beyond what they call “unconscionability”, which quite frankly is a matter of opinion. In other words, it is basically a way to say that there is no cap on interest rates, as there is no defined standard. This includes Alabama, Idaho and Utah, to name a few. There are also still four states that have no maximum APR on the books at all.

What Does All of This Mean?

In short, depending on the state you live in, the laws on personal loans will vary drastically. If you are going to take out either a payday loan, or some type of installment loan, you should do the research online to figure out exactly what your state allows, and more importantly, what type of protections you have as a consumer. Predatory lending is still a problem, so caution is the better part of valor. Taking a few minutes to look up the maximums and minimums in your state could save you months, if not years, of financial pain.

Unfortunately, in the past, the industry has taken advantage of people that are in desperate financial straits, and who fail to focus on the long-term repercussions and do not read the fine print. As with all credit products, reading the terms and conditions as well as all the fine print is the solution to many of the issues. Remember, when you sign that loan, you are responsible to pay a debt. That doesn’t mean that you are at the mercy of the lender; quite the opposite, remember that the lender also needs you in order to make money. Without you, they go bankrupt.