Understanding Where to Find That Emergency Short-Term, Small Consumer Loan

One of our readers inquired about a two-month payday loan the other day, as to where to find such a thing. Well, those kinds of loans do exist, if you know where to shop.

There are different regulations that apply to loan companies, depending on the licensing options selected by the loan company. When you understand the differences between loan companies, you will quickly understand where to get the kinds of loan products you actually need.

Types Of Small Loan Lending Companies

It must be noted that while the federal government has some regulatory power over finance companies, most regulations on loan companies are defined at the state level, by state governments.

* Payday Loans / Cash Advances - Generally, payday loans are dictated by the idea that the loan duration is for the amount of time required for the borrower to receive his or her next paycheck. Most states dictate that a payday loan company may set the duration of a loan between 12 days and 45 days. Most payday loan lenders only permit the loan to run until the borrowers next payday period, with no exceptions. While some states permit a payday lender to roll over one loan into another loan, the state where I live - Oklahoma - prohibits payday lenders from rolling over a loan to another payday, and Oklahoma also limits payday loans to a maximum of $500.(As previously noted, regulations on payday loans vary from state-to-state.) Most payday loan lenders charge loan fees, as opposed to interest rates, so as to not violate the Usury Laws that prevent companies from collecting huge interest rates on a loan.

* Small Loan Companies - Small loan companies and finance companies are permitted to collect a higher interest rate than a bank, savings and loan, or credit union. But, small loan companies are limited by the amount of money they can loan. In Oklahoma, the maximum that one of these small finance companies can loan is $1000, and loans can be made for a duration of several months. In Georgia, the maximum that can be loaned by small loan companies is $3000.

* General Finance Companies - Certain finance companies can loan more than the previously stated $1000 and $3000, but because those finance companies fall under different regulations, the amount of interest they can charge for a loan is significantly reduced. As the loan values increase, so does the potential length of the loan.

State Regulations

Some states make exceptions to payday lenders to make loans that are in effect charging in some cases triple-digit interest rates for loans. As a matter of terminology, most payday lenders call their fees "loan fees" to bypass usury laws, and in some states this is an acceptable route for lenders to take. Other states do not see "loan fees" any different than "interest rates", so many states regard existing state usury laws to be the final word on the matter.

While most states will permit loan companies to charge from 24% to 48% annual interest on a loan, not all states will permit such high interest rates.

For example, New York State draws the line at 25%, declaring that its criminal usury cap is 25% annual interest, which in essence means that any interest rate above 25% is criminal in nature.

Arkansas had set its usury cap at 17% many years ago, and in 2008, the Arkansas Attorney General demanded that payday lenders terminate lending altogether, void existing loans and stop collections on loans currently in default. Recent Arkansas Supreme Court decisions focused on Arkansas' Constitutional usury limit of 17%, and the potential violations of the Arkansas Deceptive Trade Practices Act.

Getting The Two-Month Loan

As shown in this review of lending company types, it is clear that our reader should not have been focused on searching for a payday lender at all. The reader needed a two-month loan of $600, but the payday lender is restricted to offering loans that will not exceed the length of time required for the borrower to get his or her next paycheck.

If this reader would have wanted to go to a payday lender, he or she will have needed to take the loan and roll it over four times. But if that individual were in a state that had regulations like those found in Oklahoma, then rolling the loan over even one time is a forbidden practice. Besides, rolling a loan over-and-over is a bad idea just from the fee side of the payday lending industry, as explained in more detail here: http://cash-advance-payday-loans.org/blog/how-do-payday-loans-work/2008/12/

The best option of course would be to go to a small loan company for that two-month $600 loan. The small loan companies and small finance companies specialize in loans that can be paid back over anywhere from five months to one year. In addition, the small finance company will charge lower fees and interest rates than the payday loan company, which is an extra bonus.

Some banks even offer their customers two-month loans or six-month loans, for those smaller financial needs. If you have banked at a particular bank, savings and loan, or credit union, don't forget to check to see if they offer customers small loans for short periods of time. You might be pleasantly surprised at the answer you might receive from them.

In Conclusion...

The final answer for you is that if you need a loan that can be paid back beyond your next payday, then you should be seeking your loan from someone other than a payday loan / cash advance lender.

Payday loans are simply one option for acquiring a short term loan, but it is not the only option, and it is not always the best option.

It is important to understand all of the loan options you might have available to you, so that you can make the best decision regarding your short-term financial needs.

Good luck in your search for funds...