Payday Loans in Hawaii: Are They Legal and How Do They Work?

“Quick cash” has become synonymous with payday loans, so if you live in Hawaii and face a financial emergency, like a lapse in seasonal employment or an urgent, family-related trip to the mainland, you might search for a payday lender.

But traditional payday loans are banned in the Aloha State, and small-dollar installment loans are highly regulated. 

In this guide, we’ll cover Hawaii’s payday lending laws and how to find affordable financing or otherwise weather income gaps in the state.

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Are payday loans legal in Hawaii?

Payday loans are illegal in Hawaii. The state officially banned them in 2021 by passing new usury laws that repealed deferred deposit transactions, another term for small-dollar, high-cost credit secured by check or electronic fund transfers. 

These laws also introduced restrictions for small-dollar installment loans. For instance, they:

• Cap the annual percentage rate (APR) at 36%, a dramatic reduction from the state’s prior average of 460% 

• Limit the maximum loan amount to $1,500

• Require repayment terms of 2 to 12 months, with a minimum of two months for loans of $500 or less and four months for loans over $500

• Allow a monthly maintenance fee between $25 and $35, depending on loan size, with total loan charges capped at 50% of the original principal

• Prohibit lenders from extending more than one small-dollar installment loan to the same borrower at once

• Mandate a 3-day cooling-off period between loans

All companies that make these loans must hold licenses with Hawaii’s Division of Financial Institutions. If a small-dollar lender is operating without a license or violating these terms, they’re doing so illegally, and the loan itself might be null and void. 

How payday loans work in Hawaii 

Traditional payday loans backed by a post-dated check or automatic bank account transfer are no longer available in the Aloha State.

Instead, to take out a small-dollar installment loan in Hawaii:

1. You apply online or in person. Most lenders require you to be at least 18, hold a government-issued ID, have verifiable income and maintain an active bank account.

2. You await approval. Hawaii requires lenders to confirm that prospective borrowers are within its maximum loan limits.

3. You receive and sign a loan agreement that, by law, must disclose the APR, total fees, repayment schedule and your right to rescind the loan within three business days.

4. You get your funds, usually via direct bank deposit, debit card transfer, check or cash for in-store loans. The lender must disclose the disbursement method in your loan agreement.

5. You repay in installments. To eliminate balloon payments, Hawaii mandates that lenders allow borrowers to repay the loan in substantially equal and consecutive payments of principal and interest over 2 to 12 months, depending on loan size. Lenders can require monthly, twice-monthly, or bi-weekly payments.

The risks and dangers of payday loans

Traditional payday loans have a longstanding bad reputation as they come with exorbitant APRs of 400% or higher, short, single-payment terms of 14 to 30 days and virtually no barrier to entry. 

Payday lenders don’t typically conduct standard credit or financial checks, making them an option of last resort for cash-strapped, credit-poor borrowers who could easily struggle to repay. These borrowers are vulnerable to loan renewals, their associated fees, a hard-to-escape debt cycle, default and long-term damage to their financial health. 

Hawaii’s small-dollar lending laws protect its residents from many of these dangers, but borrowers still face some risks, including:

• Expensive credit: A $1,000, 12-month installment loan with a 36% APR costs around $200 in interest. Add a $35 monthly maintenance fee and total costs can approach the 50% cap, meaning you’ll repay up to $1,500 in principal, fees and interest for this loan.

• Unlicensed online lenders: Many payday-style lenders left Hawaii after its small-dollar lending laws went into effect. While largely good news for consumers, a lack of borrowing options could push bad-credit borrowers toward unlicensed online lenders trying to skirt regulations.

• High cost of living: Hawaii is one of the most expensive U.S. states, leaving residents susceptible to routine borrowing and debt cycles, even at lower interest rates. 

How to avoid the payday loan trap

The following steps could help you avoid a debt cycle in Hawaii: 

• Start an emergency fund with an eye toward saving three to six months’ worth of expenses. In the short term, even a few hundred dollars could help you withstand financial emergencies between paydays. 

• Build credit by opening a secured credit card, making timely loan payments, and keeping overall debts low. A good credit score generally helps you qualify for more favorable APRs and loan terms. 

• Verify your lender is licensed with Hawaii's Division of Financial Institutions. Unlicensed lenders are prohibited from collecting on their debts. 

When a payday loan might be the only option

You can’t get a traditional payday loan in Hawaii, but you might need small-dollar or otherwise costly financing if an urgent financial issue arises and you have bad credit and few funds in your bank account.

In Hawaii, financial emergencies could include:

• Emergency home repairs in the wake of Hawaii’s tropical storms, flooding and lava flows

• Surprise car repairs, especially if you live on an island with limited public transportation and need to get to and from work

• Immediate threats of eviction or homelessness related to the state’s high housing costs

To minimize any costly credit damages following a financial emergency, you could lean on the following strategies:

• Borrow the bare minimum. Hawaii law allows early repayment without penalty, so paying off the loan ahead of schedule reduces your total interest cost.

• Know your rights. In Hawaii, if you change your mind within three business days of borrowing, you can cancel the loan and return the funds at no cost.

• File a complaint with the state’s Department of Commerce and Consumer Affairs (DCCA) or call 1-844-808-3222 if a lender appears to be violating state law.

Safer alternatives to payday loans

You might be able to avoid costly, risky credit by exploring these payday loan alternatives.

Credit cards

Credit cards carry average APRs around 21%. That’s lower than Hawaii's capped installment loan rates, though you can carry costly credit card debt indefinitely (whereas installment loans have a more definitive end date). 

If you have a credit card, you might be able to buy yourself some time to pay off a pressing expense. Most carry a 21-day grace period in which new purchases don’t accrue interest.    

Earned wage access

Earned Wage Access (EWA) services allow employees to access a portion of their earned wages before their scheduled payday. Some employers offer EWA as a workplace benefit, as do standalone providers.

For example, Instacash from MoneyLion lets you access up to $500 of your earned wages early with no interest or credit check. 

Personal loans (banks or credit unions)

Community banks and credit unions, specifically, might offer personal loans at affordable APRs, though you typically need good credit or a pre-existing relationship to qualify for them.

Depending on your credit profile, it could be worthwhile to shop around. Bank of Hawaii, First Hawaiian Bank and American Savings Bank advertise unsecured personal loans with competitive rates on their websites.  

Payday alternative loans (PALs)

If poor credit is an issue, you could ask your local credit union whether it offers payday alternative loans (PALs). PALs offer relatively affordable APRs (capped at 28%), but often require no credit check or utilize lenient lending standards. 

Credit-builder loans

While not suitable for a pressing cash shortage, credit-builder loans could help you build savings and credit via installment payments on a small loan held in a savings account. 

You can learn more about credit-builder loans through MoneyLion’s Credit Builder Plus membership. 

Hawaii-specific assistance programs

These programs could help you avoid borrowing to cover essential expenses:

• Hawaii Relief Program provides eligible families with up to $6,000 toward housing payments, utility deposits, and utility bills for up to 4 months. 

• Hawaii Home Energy Assistance Program (H-HEAP) offers a one-time payment toward electric or gas bills for eligible households. 

• Emergency Rental Assistance Program (ERAP) helps renters facing hardship or homelessness, with eligibility based on median income. 

You can find additional local resources by calling 211 or visiting Aloha United Way's 211 website.

Borrowing from family and friends

A loved one might be willing to lend you a small sum to cover an urgent cash shortage, allowing you to avoid interest and possible loan denials. 

If you go this route, it’s best to draft concrete repayment terms and avoid repeat asks. If you routinely ask friends or family for funds, consider free financial or credit counseling to improve your money management skills.

Side hustles

Popular side hustles in Hawaii include tourism-adjacent work, such as excursion guiding, surfing lessons, event staffing and short-term rental management. Rural and small-island residents might find work — and enough supplemental income to get through a financial emergency — in agriculture, fishing or farmers' markets.

Conclusion

Hawaii banned traditional high-cost payday loans by passing one of the nation’s most significant small-dollar lending reforms in 2021. Beyond banning deferred deposit transactions, the state meaningfully regulates small-dollar installment loans. Its laws require lower APRs, longer repayment terms and borrowing limits.

That said, a $1,500 loan with 36% APR and monthly fees could cost you. You can mitigate credit risks by shopping around for the best loan terms, developing a strong repayment plan and exploring potentially more affordable solutions, such as EWA products or state assistance programs.

FAQs

Where can I borrow $500 instantly in Hawaii?

Some licensed small-dollar lenders in Hawaii include Money Mart and Possible Finance. Both advertise fast funding and must abide by the state’s usury laws. You could also get small-dollar, unsecured personal loans at many credit unions and local banks. It’s a good idea to comparison-shop for the best available terms.

What is the maximum loan amount I can borrow in Hawaii?

The maximum small-dollar loan amount in Hawaii is $1,500. You generally can’t have more than one of these loans open at a time. 

What fees and interest rates can small-dollar lenders charge in Hawaii?

Licensed installment lenders are capped at a 36% APR and may charge a monthly maintenance fee between $25 to $35, depending on loan size. Total loan costs can’t exceed 50% of the original principal.

How long do small-dollar loans last in Hawaii?

Small-dollar loans in Hawaii must have a minimum term of 2 months for loans up to $500 and 4 months for loans above $500. The maximum term is 12 months. 

Sources

• Capitol.hawaii.gov - H.B. 1192

• Pew.org - Payday Loans Cost 4 Times More in States With Few Consumer Protections

• Cca.hawaii.gov - Department of Commerce and Consumer Affairs Website