Thursday, July 14, 2011
For those living on limited income and/or trying to raise a family from paycheck to paycheck, credit options are few and far between. Credit with reasonable APR requires good credit history, and good credit history only exists as a result of fulfilled credit repayment. It's a cycle that most working class families can't get out of, and the options available to them are not only limited, they're risky. High interest loans like payday advances and title loans can assist such families, but on the whole they're incredibly interest-laden, sometimes as high as 450% APR.
But the laws regarding high interest loans vary from state to state. For example the car title loans California lenders offer come with stipulations that are drastically different from the ones lenders in New Jersey or Texas can offer. There are four distinct ways states have chosen to go about handling payday loans and other high interest advances. One is to do nothing or close to nothing to regulating such loans. Another option is to ban such loans outright. Yet the majority of states have chosen to either regulate the APR or the amount that can be lent out at any given time.
New Jersey law, for example, states that lenders can't give out loans in excess of $2500 at any one time if it falls under the high interest category. As of 2011, Maryland has completely banned title loans. States such as New York, Washington, Tennessee, and Georgia have APR limits in place on payday and title loans. Yet 18 states, including Maine, North Carolina, Mississippi, and Alabama, all have no laws regarding the limit of interest rates or loan amounts that payday lenders can provide borrowers.
States that require APR limits vary in that limit. Some have conservative APR limits close to most extreme credit card interest rates such as 25%, which essentially makes the payday loan business in that state a non-profitable business. Others, however, such as Tennessee, have "limits" in the 450% range. It's important that those who ever consider taking out a title loan or other high interest credit line make sure they understand the extent of these "limits" in their respective states.
Lines of credit are incredibly limited when your income is limited. It's the way it should be, to some extent, since borrowers should always have an easy and/or anticipated way to pay their loans off in full. But when a line of credit is necessary, for whatever reason, many turn to high interest loans. Those that do must be aware of the laws in their individual state. Otherwise they could end up paying a crippling price.