Regulations for payday and other forms of short term loans can be complicated. Different states have different rules regulation both payday and short term loans. However there are a few constants that appear throughout the United States regulating these types of loans. In this article we will learn what payday and short term loans are and what restrictions on these loans are typical throughout the United States.
What is a payday loan?
A payday loan is a typically small, unsecured loan given to someone based on current or former employment history and pay stubs. The difference between a secured loan and an unsecured loan is that a secured loan has some collateral behind it that the lender may repossess in the even of nonpayment. An unsecured loan is given simply based on factors like credit history, net worth, or employment and employment history. Payday loans are typically extended to be people to be repaid within 30, 60, or 90 days after which time interest begins accumulating.
What is a short term loan?
A short term loan is a loan that is extended for a small period of time, usually no more than a few months. A payday loan is a form of short term loan but not all short term loans are payday loans.
Due to the differences between payday and short term loans they do have a number of different regulations. Many payday loan operations are regulated by much more stringent usury (borrowing) laws. These laws prevent the payday loan company from charging excessive interest as well as regulating how and when they can collect money. For example, a payday loan company may not be able to contact a borrower between certain hours or by certain forms of communication such as over the phone.
Unsecured loans are also regulated by city and state governments in order to prevent certain individual borrowers from becoming the victim of confusing or unclear contracts. Many dealings of payday loan companies are scrutinized much more than other forms of short term credit such as pawn shops. Many different payday loan companies are not allowed to operate within certain areas of cities or around military bases due to some perception that these companies can possibly charge too much interest.
To answer the question, yes regulations for short term loans are much different than payday loans. Short term loans encompass a wide variety of forms of credit and lenders, from banks to pawn shops. Payday loans are filled by a specific niche of payday loan companies and they are also based on a specific form of credit which is employment credit. For these reasons the regulatory climate for payday loans is very much different than your typical short term loan.