Yes, payday loans are legal in California. But laws stipulate the maximum payday loan allowed is $300, including fees. And the most a lender can charge is a 15% fee — up to $45 — meaning the total loan amount borrowers can receive is $255. Payday lenders also cannot issue a new loan if you already have one, so if you need more than $255, you’ll have to find another solution.
When you need to borrow cash fast to cover unexpected gaps in your budget, there are several viable alternatives to payday loans available in California. Here are a few of the best options.
If you have a decent credit score and prefer a longer loan term, a personal loan might be the way to go. Personal loan lenders typically require a hard credit check, which may temporarily drop your score a few points, and the requirements to qualify are likely to be stricter than other options on this list. Also, if you only need to borrow a small amount, it may be difficult to find a personal loan for $250 or less.
But personal loan rates are capped at 35.99%, much lower than payday loans, and you could potentially borrow a larger amount if you need it. Plus, loan terms are much longer, giving you some breathing room to pay it back. And, if you have a good credit score, you could qualify for a competitive rate.
A cash advance app might be a good choice if you have bad (or no) credit but a steady source of income. Cash advance providers generally don’t do credit checks or charge interest or late fees, but they require a history of recurring deposits to qualify. You may also need to get paid by direct deposit, although a few providers don’t require direct deposit.
However, cash advance apps have short loan terms — usually just until your next payday or deposit — and it could take time to become eligible for advances up to $250. You may also be required to pay a monthly subscription fee for the service and an additional fee if you need the cash right away — though some cash advance apps are mostly free.
Members of some federal credit unions may have the option to take out a payday alternative loan (PAL), but you’ll usually need to be a member for at least 30 days to qualify. PALs range from $200 to $1,000 — although some go as high as $2,000 — and rates are capped at 28%. Loan terms are anywhere from one to six months or up to 12 months for $2,000 loans.
TIP: Even if your bank or credit union doesn’t officially have a PAL, it may still offer a version of it. Many banks and credit unions provide small-dollar loans or lines of credit at reasonable rates for customers in good standing.
Installment loans generally refer to short-term loans similar to payday loans but typically have better rates and longer loan terms. You might also get a larger loan amount than payday loans. However, rates can still reach into the triple digits with some installment loans, so you may want to exhaust other options first.
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Loan costs in California aren’t exactly straightforward — and that’s putting it mildly. While the state constitution sets a 10% interest cap under its usury law, there are plenty of loopholes. That cap doesn’t apply to most banks, credit unions, finance companies or other licensed lenders — which means many can legally charge much more.
In 2020, California passed the Fair Access to Credit Act, which caps interest rates at 36% APR on most consumer loans between $2,500 and $10,000. But that cap doesn’t apply to all lenders or loan types, and rates can still be much higher on loans that fall outside this range — especially short-term installment loans or high-risk financing.
At the end of the day, how much you pay depends on the loan type, lender, repayment term and your credit profile. On top of interest, many lenders charge origination fees, late fees, non-sufficient funds (NSF) fees and other costs that increase your total repayment amount. Always review the full loan terms — not just the interest rate — so you know exactly what you’re signing up for.
If you’re facing long-term financial struggles, a loan might not be your best option. Try turning to some of the many assistance programs available in California to help make ends meet.
Payday loans may be fast and convenient, but they’re expensive and put borrowers at risk of falling into a cycle of debt. Luckily, there are many alternatives to payday loans, such as personal loans, cash advance apps, PALs and installment loans. Take the time to explore your loan options before giving your hard-earned cash to a payday lender.
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