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?
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It’s possible to have more than one payday loan at the same time
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 the dangers of having more than one payday loan at a time.
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 can legislate restrictions on payday loans, and the rules differ wildly between them.
Unfortunately, payday loan lenders, especially online ones, have a bad habit of bending or ignoring the law anyway. It’s tough to enforce online lenders’ rules since so many are based overseas or on Native American reservations.
Laws do not prohibit multiple payday loans
Payday loans are regulated by state law. Payday lending is illegal in 18 states and the District of Columbia but legal in the other 32 states. Some states have laws setting interest rate caps, while annual percentage rates in states with no rate cap can often top 600%.
States that have no payday loan restrictions
Some states have no loan limits. In Texas, for example, there is no legal limit to the amount a payday lender can loan you.
So if you already have a $500 loan, the same lender (or any other lender) is legally allowed give you another $500 loan. Whether they will or not will depend on the lender.
You can still get a second payday loan in states with loan limits
For example, in California, state law says you can only have one payday loan at a time. But since a tribal lender doesn’t have to follow state laws, you can still get a second payday loan.
READ MORE: What is a tribal payday loan?
And in Virginia, the maximum loan amount is $500. But that doesn’t mean you can only borrow $500. It simply means an individual lender can only give you $500. You can visit a second lender and get a second loan. The original lender, however, can and will allow you to roll over your loan into a new loan (and pay a new set of fees) if you can’t repay your original loan. But the lender is not allowed to increase your initial loan amount.
If you have a $500 loan from Check Into Cash, there’s nothing prohibiting Speedy Cash from giving you another $500 loan.
This means that even in states with loan limits, you can obtain a second payday loan. It will just have to be from a different lender.
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 (usually all you need is a checking account, ID and proof of income), but they still want to make a return on their money. When you apply for a new payday loan, they’ll run a credit check, just like any other lender.
Your credit reports contain a history of every loan and credit card you’ve ever taken out, including all your payday loans. If you already have one or more outstanding payday loans, the 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.
READ MORE: How are credit scores calculated?
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.
READ MORE: Feeling Trapped? Here’s How to Pay Off Multiple Payday Loans
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 even more important when you already have one loan.
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 are virtually impossible.
This isn’t just because having to repay multiple loans from your next paycheck is extremely difficult. It’s important to realize that each payday loan you roll over will have worse terms than its predecessor.
More loans mean worse loan terms
Interest rates almost always have a direct correlation with risk. Payday lenders are no exception, though the extremely high interest rates they charge tend to be disproportionate to their loans’ riskiness.
Even payday lenders know that if you have one or more outstanding payday loans, 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.
READ MORE: What is payday loan consolidation?
Are payday loans ever a good idea? Check out this video to learn more:
Better payday loan alternatives
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
- Cash advance apps (like Dave or Albert)
The bottom line
It’s never a good idea to take out multiple payday loans. You have other options.
If you’re looking for funding because you’re currently stuck in the payday loan debt cycle, DebtHammer 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.
Credit counseling gives people the tools, education, and guidance necessary to improve their finances. Nonprofit credit counseling agencies are the most common providers of credit counseling services. Because they rely on donations and government funding, their services are usually very affordable, and a credit counselor working for a nonprofit shouldn’t turn anyone away because they can’t afford to pay.
Payday alternative loans are similar to payday loans, but there’s one significant difference — PALs are issued through federal credit unions, making them much more affordable. Unlike payday loans that must be paid in full by your next payday, PALs are installment loans where you’ll have a monthly payment plan. No rollovers are allowed, loans are repaid over about one to six months and interest rates are capped. Eligibility requirements and the application process are usually comparable to a payday loan (except you’ll have to join a credit union), but you’ll get a significantly lower interest rate.
Cash advance apps, also sometimes known as payday advance apps, provide almost instant cash, giving users access to money they’ve already earned but haven’t yet received from their upcoming paycheck. Their popularity is growing rapidly. About a third of Americans have now signed up for at least one cash advance app. Many cash advance apps are free to use, though some will charge a small membership or monthly fee. Unlike many lenders, few cash advance apps charge interest or loan origination fees. Instead, borrowers pay them in the form of tips.
A payday loan is a short-term unsecured loan that’s repaid from your next paycheck. A car title loan is a short-term secured loan (usually about 30 days). The loan is secured by a borrower’s vehicle. That means that any borrower who can’t repay their title loan is at risk of losing the car.