What states prohibit payday loans?

States that currently have prohibited payday loans outright or have laws that essentially ban payday loans as of 2022 are: Arizona, Arkansas, Colorado, The District of Columbia, Georgia, Massachusetts, Maryland, New Jersey, New York, North Carolina, Pennsylvania, West Virginia, Vermont. 

Payday loans are technically legal in Maine, Montana, South Dakota, and New Hampshire, but these states have laws that limit payday loans extensively, making them an unprofitable loan product for most lenders. Because it’s difficult for lenders to make a profit from payday loans in these states, payday lending is less common in those areas. 

Payday loans are a type of unsecured funding that typically come with high-interest rates, low loan amounts, and brief repayment terms. Unsecured financing simply means that lenders don’t require any collateral in order for borrowers to receive approval.

Payday loans were designed to connect borrowers to funding while in between paychecks, hence the name “payday loan.” Since payday loans are meant to be used as financial assistance for borrowers who are in between paychecks, lenders usually expect borrowers to pay back their loans in full when they receive that next paycheck. This puts the expected turnaround time for a payday loan at approximately two weeks or less. 

Since the expected payback period for a payday loan is about 14 days, loan amounts typically remain pretty low. If you need more than a few hundred dollars, you probably won’t be able to cover your expenses with just a payday loan. 

Many of the states that allow payday loans do not have interest rate caps or fee limits, which means that many payday lenders can charge exorbitant interest rates or tack on useless charges and fees. A loan’s interest rate heavily dictates how much a borrower will end up paying over the course of their funding terms, and high rates can cause borrowers to pay twice their original loan amount or more! 

If you live in a state that allows payday loans, know that you are most likely better off with another loan option. Funding like personal installment loans, bad credit personal loans, or debt consolidation loans from a direct lender can allow you to take care of your expenses without getting hooked with inconvenient rates or terms.

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