Payday lending is not prohibited in Massachusetts. Yet what is referred to as a "payday loan" is illegal due to the high annual percentage rate charged.
Any company or individual that engages in small-dollar lending in Massachusetts must get a license from the DOB.
What is a payday loan?
Payday loans are short-term, small-sum, high-rate, unsecured personal loans. Your checking account is the method of repayment of the amount borrowed and any extra fees. These types of loans may also be called cash advance loans, check advance loans, post-dated check loans, or deferred deposit loans.
Since these loans are short-term, the cost is very high. Payday loans average annual percentage rates of over 500%.
In exchange for a loan, you allow the lender to take money from your bank account for payment. The full amount of the loan and any fees are usually due in full within 14 days - or by the time of your next paycheck. If you don't have the money to pay back the loan in full within the agreed upon timeline, lenders will allow you to continue the loan. More fees are charged to continue the payday loan.
Risks of payday loans
Payday loans are often internet-based and need access to a your bank account and personal information. Many internet-based payday lenders give little or no information about themselves. They may use different names and many web addresses.
E-mail addresses and toll free telephone numbers are usually the only way you're able to contact the payday lender. It can be impossible to track down the lender without information about where the company is located.
There is a high risk of identity theft when using a payday loan. The payday lenders work online and all over the world - making them hard to track and verify.
Alternatives to payday loans
Before you consider a payday loan explore other alternatives including:
- Asking your bank or credit union about short-term loan options. Costs for a traditional short-term loan at a bank or credit union are usually much less than a payday loan. The risk is also minimized because you are able to interact with the institution's representatives.
- Getting a cash advance from a credit card. Even though there are fees involved with a cash advance, it is still less costly than payday lending.
- Asking your employer for an advance on your paycheck.
- Finding out if you can delay paying a non-interest bill. Non-interest bills include utility bills. Try to set up payment arrangements with the utility company.
- Asking your creditor for more time to pay your bills or for a modification to your terms. Ask what they will charge for this service - a late charge, an extra finance charge, or a higher interest rate.
- Contacting an accredited consumer credit counseling agency in your area. Counselor can tell you how to get out of debt and avoid predatory loans.