Online Payday loans are credits that are available to people immediately when they need emergency funding before accessing a paycheck. In the US, every state has the right to regulate how payday loans get issued, and California is among the strictest in giving out such loans.
In California, you can miss out on a payday loan, unlike many other states where it is straightforward to access one. Also, the strict rules set in California not only affect people looking for payday loans but also the lenders in this industry.
As mentioned earlier, California does not go easy on any player in the payday loan industry. More than 9 lenders who got into tussles with customers got sanctioned in 2015. Let’s take a look at some of the restrictions set by the state;
Maximum loan term
Both lenders and their customers ought to strictly follow the loan term guidelines set here. First, no payday loan term can exceed 30 days from when it gets issued.
However, to protect the lenders’ interest, if a customer defaults, the payment can get rolled over to another month. However, the loan attracts new interest in the new month for as long as it remains unpaid.
Maximum loan amount
Loanees sometimes get tempted to borrow too much that they cannot payback. Also, some end up borrowing all they earn in a month then spend all their earning paying back. That makes them return borrowers affecting their financial soundness.
Therefore, California seeks to control the credit behaviour of its citizens. The first step towards this is setting a maximum amount you can take home in payday loans. Currently, the maximum remains at $300 to ensure you do not borrow too much.
Annual interest rate
Interest charges are some of the most regulated aspects of payday loans in almost every state. California also remains at the top of setting and enforcing interest rate rules. Payday loans in California come with a Cap 459% on the annual interest rates.
Also, every loan gets processed at a finance charge. For an investment of $100, you will usually pay within 14 days with a cap of $14.65. The interest rates, processing fees, and other charges are always part of this calculation, and therefore, you pay the sum as a whole.
Maximum financial charges
Most lenders will pin you down to paying too much than what you should pay as financial charges when accessing their loans. However, California sets out monetary fee restrictions to curb such behaviours to make it more friendly.
It is illegal for a lender to set their charges at more than 15% of the total amount borrowed. Therefore, no matter what you borrow, you should calculate how much the total expenses should be on your loan and make sure the lender does not exploit you.
Payday loans are essential for everyone because of unexpected emergencies that require money. However, without regulation, this industry can get messed up with lenders exploiting borrowers or vice versa.
The guidelines set get to bring sanity to the industry and make the borrowing business mutually beneficial.