Short term loans are very useful when used correctly. However, they are also fairly easy to mis-use. So, the question arises: how much can I borrow while still staying safe? How much can I borrow without going overboard? In this article, we will explore what short term payday loans are meant to be used for, including some surprising statistics about how access to short term loans may be affecting the poverty rate.
How much can I borrow?
In most instances, short term loans are available to people who can’t borrow money through other means. They can offer a lifeline to those who find themselves in financial trouble. When banks and other lenders refuse to offer cash, payday and short-term companies provide the solution. While that form of borrowing gets a lot of bad press, it has helped thousands of UK people to meet their obligations and resolve their money worries.
However, some folks get themselves into trouble because they apply for too many loans at the same time. Considering that, we wanted to take a look at the situation and perform an assessment – how much can I borrow without unreasonable risk? With a bit of luck, the information on this page will help readers to make the right moves if they encounter financial difficulties. It’s impossible to know when something may happen that will mean you need cash fast. Short-term loans could be the only thing stop a family from losing their home.
Why people apply for short-term loans
People make applications for short-term loans all the time. There are hundreds of different reasons they do that. For example, they might have fallen behind on their monthly bills. They don’t want to get lots of extra charges, and so they need cash fast. They might also have encountered an emergency that means they need to spend money. Whatever the reason, payday experts swing into action and provide them with a cushion that could stop the worst from happening.
Even some businesses apply for loans of that nature when they discover cash flow issues. With all the bad press we’ve seen during the last few years, it’s unsurprising some folks take a dim view of the industry. However, it’s critical to note that many families would have gone without food were it not for having that option on the table.
Benefits of short term loans
Other than getting money fast, there are lots of other benefits people encounter when applying for short term loans. For instance, making the repayments on time could help to boost their credit score. That means they might find themselves in a position to borrow money from their bank in the future. Also, payday loans direct lenders offer many different payment schedules to suit the individual. In most instances, the borrower chooses when they want to pay the money back. You would choose ‘how much can I borrow’ and ‘when can I pay it back’. That means the agreements are flexible, and the person gets more control.
Of course, interest rates will apply if the individual doesn’t meet their responsibilities. While those prices might seem high to some people, they reflect the risk involved. In most situations, those who require short-term loans are not in the best financial situations. The interest rates are there to ensure lenders don’t go bust when their clients struggle to make payments.
Short term loan rules in the UK
Due to some negative news articles, the FCA began to place strict regulations on the payday loan industry in 2014. They did that in the hope of improving the situation and ensuring lenders didn’t take advantage of vulnerable people. The new rules had two primary aims. They were designed to ensure firms only lend who borrowers who can afford the repayments. They also wanted to increase the borrower’s awareness of the potential costs involved. The FCA spent a long time assessing the market before creating regulations that should help to achieve their goals.
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Here are some of the key changes made by the FCA:
Limiting the number of times someone can rollover a loan
Up until 2014, borrowers could roll their loan payments over to the following month if they couldn’t find the money. However, the FCA were concerned about how that increased the chances of the loan becoming heavy debt. For that reason, they put rules in place that mean an individual can only roll a loan over twice before the balance is due. It is hoped the move will stop UK citizens from falling into a debt spiral from which they couldn’t recover. Every time someone rolls their loan over, the lender applies new interest and charges. Before too long, the repayment becomes unaffordable. When that happens, the borrower is likely to ignore the debt and allow it to build.
That situation doesn’t help anyone. While there are no limits on the number of payday loans someone can have, they can’t roll them over more than twice these days.
Stopping lenders from attempting to take a payment more than twice
Payday lenders tend to use a CPA (Continuous Payment Authority) to collect payment from their clients. That is a way of taking money from their bank account at any time or date. The issue is that sometimes the cash isn’t there. In some instances, things get worse because the money’s there, but it’s reserved for more important bills. In the past, that has led to some borrowers being unable to pay their rent or council tax. That gets them into even more trouble, and it’s hard to dig themselves out. The FCA believes that stopping lenders from attempting to take the payment more than twice will help the situation.
Other FCA regulations on short term lending
The FCA also brought many other rules into force during 2014 and 2015. They include:
- Banning part payments by CPA
- Introducing a new risk warning on short-term loan online websites
- Forcing lenders to give information about debt help
- Capping interest and fees on short-term loans at 0.8% per day
- Capping default fees at £15
- Capping total fees at 100% of the original sum, so no person will pay back more than twice what they borrowed
Short term loan rules in the USA
Let’s take a quick look at how the regulations on short term loans differ in various states, and how this may have affected the poverty rate.
In America, payday loans are regulated differently from state to state. That means the rules are confusing and can differ depending on location. However, the industry tends to work in much the same way as it does in the UK. Let’s take a look at how much can I borrow in just some of the states and how they approach the market.
- Georgia prohibits short-term loans under racketing laws.
- New York and New Jersey prohibit payday loans. They limit all lending to 30% annual interest.
- Arkansas allows short-term loans, but it limits interest rates to 17% per year.
- New Hampshire capped interest rates at 36% in 2009.
- Montana also limited interest to 36%.
- South Dakota capped rates at 36%.
- North Carolina allowed payday loans for a few years but then banned them.
- Payday loans are illegal in Connecticut, Maryland, Massachusetts, Pennsylvania, Vermont, and West Virginia.
As you can see, there are many locations in America in which short-term loan companies would struggle to survive. What’s interesting is that poverty rates in those areas tend to exceed the national average. Some experts believe that is because residents don’t have access to fast cash when they need it most.
States where short term loans are allowed
Thankfully, other places in the US are forward-thinking. There are no less than thirty-two states in which people can get some form of short-term lending, the darker ones in the graph below:
These states are: Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.
Much like the UK, there doesn’t seem to be any rules over the number of loans someone can receive. There are only regulations surrounding rates of interest and how many times someone can roll their payments over. So, to answer the question posed in the title of this article about how much can I borrow: You can have as many payday loans as you like. It’s just that difficulties can arise if you struggle to make repayments. That is the case, regardless of where you might live in the world. Capping interest rates at small figures like 30% just makes it harder for lenders to offer capital. However, it does not affect how many loans an individual could consider.