A payday loan is a short-term loan that makes use of the borrower's next paycheck as collateral. It is a convenient option in times of financial distress as it does not rely on your credit score as the borrower, but on the frequency of payment and other factors such as the age of the borrower, the length of employment, and the availability of a working bank account. These factors also affect the amount of money that can be borrowed.
The industry for payday loans has grown rapidly in the United States, and so has the need to protect borrowers from unscrupulous lenders who are out to trap them in an endless cycle of debt. Such lenders implement tactics such as unlimited rollovers to put borrowers at their mercy permanently. A rollover comes about when a creditor gives an additional loan to a borrower to complete the previous payday loan debt after the term is over. This is why states such as Illinois regulate the payday loans market so that consumers are shielded from the industry's adverse practices.
In Illinois, the maximum amount of money that can be forwarded by a lender is $1000 or not more than 25% of your gross monthly income. Laws and legislation that regulate payday loans Illinois are determined by the state itself. Illinois law requires for the loan amount to be defined by the borrower's capability to repay it. State law also created three categories of payday loans Illinois. These include:
1. Small Consumer Loans
In comparison to conventional payday loans Illinois, small consumer loans are less expensive because the highest Annual Percentage Rate (APR) that can be charged on it is 99%. They also have a longer repayment period that can go up to one year or more.
This is one of the best payday loans Illinois because the longer payment term enables you to manage your debt by breaking it down and stretching it out into smaller payments. This will enable you to repay it on time, and also avoid being in debt. Laws in Illinois provide that lenders cannot rollover your debt within the first 75 days of the payment term. Also, the payments per month should not exceed 22.5% of your monthly gross income.
2. Payday Installment Loans
This is a form of payday loans Illinois that allow the borrower to repay the loan in installments. They also have a longer term than normal payday loans, and can go up to 6 months. Payday installment loans have a high APR of 400% and are usually more flexible and provide better loan amounts. The law does not allow rollovers if the new loan will have you in debt for more than 6 months.
3. Payday Loans
This type of loan provides the shortest repayment term of between 2-4 weeks. It also carries a high APR of 400% and is the riskiest short-term loan. This is because the high interest rate and short term put the borrower in a position to be unable to pay it back on time.
Illinois state law entitles a borrower to request a repayment plan with your lender that is free of interest. This is only applicable in situations where the borrower has been in debt for over 35 days. It also prohibits rollovers if the new payday loan will put the consumer in debt for over 45 days in succession.
The goal of all these legislation is to regulate payday loans Illinois in order to give you as the borrower an opportunity to completely repay the loan without worrying about any supplementary charges or interest fees. It is advisable for the consumer to thoroughly consider the implications of payday loans and their ability to repay in a timely fashion. This will keep you free from mounting debt and exploitative lending practices.