Payday lenders typically target people who need fast cash to make ends meet, even though the loans create more problems than they solve. Unfortunately, payday loan borrowers often also have poor credit scores and have no choice but to take out another one the next time they’re low on cash (there’s always a next time). That raises the question: Can you have multiple payday loans at once?
The laws around this vary considerably from state to state. In some places, it is possible to have more than one payday loan – up to a point. However, just because you can, doesn’t mean that you should. Here’s everything you need to know about having multiple payday loans at once.
Payday loan regulations (Federal and State)
The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) have some oversight of the payday loan industry but haven’t yet implemented nationwide regulations. State governments have the power to design the restrictions on payday loans, and the rules differ wildly between them. For example, in California, you can only take out one payday loan at a time. In Texas, there are virtually no restrictions.
Some states, like Arkansas, forbid payday loans entirely. Lenders in Arkansas are prohibited from raising their annual interest rates above 17%, which is a far cry from the average payday loan rate, which regularly reaches 400% APR.
Unfortunately, payday lenders, especially the online ones, have a bad habit of bending or ignoring the law anyway. It’s particularly difficult to enforce online lenders’ rules since so many are based overseas or on Native American reservations.
Will lenders give you another loan?
Just because the law doesn’t necessarily prevent you from taking out a second, third or even a fourth loan, there’s no guarantee that you’ll be able to qualify for one.
Payday lenders are quite a bit more relaxed in their lending standards than the average lender, but they still want to make a return on their money. When you apply for a new payday loan, they’ll take a look at your credit report like any other lender.
Your credit reports contain a history of every loan and credit card that you’ve ever taken out, including all your payday loans. If you already have one or more outstanding, a payday lender might deem you too risky and deny you further loans.
That said, payday loans do tend to come in groups, especially when examined over time.
Borrowers tend to take out multiple loans (especially in succession)
Recent regulations by the CFPB have made it legal for payday lenders to give you loans without any consideration for your ability to repay it. In states where there are no limits on the number of payday loans you can have, this means that borrowers can rack up quite a few if they’re not careful.
Regardless of whether the law or individual lenders allow you to hold more than one of these loans at a time, it’s very common that borrowers will take out multiple payday loans in relatively quick succession.
Payday lenders know that their loans are extremely difficult to repay, so they often offer “rollovers” or “renewals.” Essentially, they’ll extend the repayment term and charge you another (large) fee for the privilege. It’s not quite like giving you a second loan, but it’s close.
Should you get a second payday loan if you already have one?
Even in the best of times, you should always do your best to avoid payday loans. But this is exponentially more important when you already have one outstanding.
Taking out a single payday loan can trap you in a cycle of debt for months, if not years. If you have two at once, the odds of you being able to repay your debts go down to virtually zero.
This isn’t just because having multiple debt payments inherently raises your costs, but because each payday loan you get will have worse terms than its predecessor.
More loans mean worse terms
Interest rates almost always have a direct correlation with risk. That’s just as true for borrowing as it is for investments. Payday lenders are no exception, though they often charge rates vastly disproportionate to their loans’ riskiness.
Even payday lenders know that if you have one or more payday loans already outstanding, the risk that you won’t pay them back is extremely high. As a result, if they’re even willing to take the risk of lending to you, they’ll charge you increasingly outrageous rates to justify that gamble.
What happens if I can’t pay back a payday loan?
Oftentimes, borrowers look to take out a second payday loan largely because they know they’re going to struggle to pay off the first. As we’ve said above, the odds of you being able to do so are slim. And even if you manage it, it will only worsen the problem.
Fortunately, there are some measures you can take to prevent defaulting on the loan. But this raises another important question: What happens if you can’t pay back a payday loan?
Frankly, it’s not pretty. Payday lenders can wreck your credit score, rack up overdraft fees on your bank account, and even take your court.
Since the repercussions are so damaging and the likelihood of them happening when you take out a payday loan is so high, it’s always best to try every alternative means of financing before you even consider talking to a payday lender.
What are my alternatives to payday loans?
Payday loans should be your absolute last resort. If you have access to any of the traditional means of support (family, savings, etc.), you should always start there.
Of course, most people considering payday loans have already exhausted these options. For those borrowers, it might feel like there are no practical alternatives to payday loans available.
If you’re already caught in the payday loan trap, it becomes even worse. Your credit score and cash flow situation make it much more difficult to qualify for any other debt.
However, there are still better options out there. If you need fast cash, make sure you consider the alternatives like:
- Payday alternative loans (PALs)
- Nonprofits and charities
- Credit counselors
If you’re looking for funding because you’re currently stuck in the payday loan trap, Debt Hammer can help. Contact us today to set up a consultation so we can help you start paying off your debts, even if you currently have multiple payday loans.