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

If you live in Maine and your car breaks down or your furnace breaks in the dead of winter, you might consider a payday loan to fund the emergency repairs. 

But these small-dollar short-term loans, typically tapped by cash-strapped bad-credit borrowers to cover income gaps, are notoriously expensive, even in Maine, where they’re regulated by state lending laws. 

Fortunately, Pine Tree State residents have better, lower-cost funding alternatives. 

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Key Takeaways

• Payday loans are legal in Maine, but state laws cap interest rates and fees under the Maine Consumer Credit Code. Even with these protections, short repayment terms and rollover options can still make payday loans extremely expensive.

• Before taking out a payday loan, consider lower-cost alternatives like credit cards, earned wage access apps, payday alternative loans (PALs) from credit unions, personal loans or Maine assistance programs such as General Assistance and Emergency Assistance through 211Maine.

• Building even a small emergency fund and improving your credit can give you more borrowing options in the future. If you do use a payday loan, verify the lender through the NMLS, ask about repayment options and make sure you can afford the loan before signing.

Summary generated by AI and reviewed by MoneyLion editors.

Are Payday Loans Legal in Maine?

Payday loans are legal in Maine. They’re defined by state law as a “supervised loan or other credit transaction” where lenders provide a cash advance in exchange for a post-dated check or permission to debit your bank account for the borrowed amount on a set date.

However, these loans face cost restrictions. The Maine Consumer Credit Code:

• Caps interest rates on loans of $2,000 or less at 30% 

• Limits flat financing fees on these loans to $5 to $25, depending on the amount

State law also requires payday lenders to register with Maine’s Bureau of Consumer Credit Protection. If a lender offers loans without a license or at higher terms than those listed above, they may be doing so illegally.  

👉 How To Get a Payday Loan 👉 What Do I Need for a Payday Loan? 

How Payday Loans Work in Maine

Outside of the cost caps, payday loans in Maine follow a relatively standard application process. 

1. You apply online, over the phone or in a store. Maine payday lenders generally require a valid government-issued identification, proof of income, proof of residence and an active checking account. They don’t typically conduct a standard credit check or hard inquiry.

2. The lender reviews your application and offers terms. Under the federal Truth in Lending Act (TILA), they must provide a written agreement that clearly discloses the loan’s annual percentage rate (APR), fees, total borrowing costs and repayment terms. 

3. You sign your loan agreement and receive your funds. Usually, the lender deposits your loan directly into your checking account within 1 to 2 business days. If you’re in a store, you might receive cash.

4. The lender collects payment on the agreed-upon due date, usually by depositing a post-dated check or automatically withdrawing the full amount from your checking account. If you don’t have enough funds to cover the loan, you could face bank fees and even account closure. 

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The Risks and Dangers of Payday Loans

Despite current restrictions, payday loans in Maine can still prove expensive. A $25 fee on a two-week, $250 loan, for instance, amounts to a roughly 260% APR. That’s lower than the almost 400% APR associated with a more typical, two-week payday loan, but it’s certainly not cheap. 

Plus, unlike some states that regulate payday loans, Maine doesn’t require longer loan terms, meaning cash-strapped borrowers might face tight two- to four-week repayment windows. It also doesn’t prohibit or limit loan renewals, a characteristic of payday loans that’s long made them associated with costly debt traps. 

If a borrower ultimately defaults on a payday loan, they could face debt collection efforts, including lawsuits and wage garnishments, which can all appear on their credit report and harm their credit score. 

How To Avoid the Payday Loan Trap

Good financial health can help you avoid unexpected shortages or qualify for more affordable financing when the need arises. These steps could help bolster your financial standing:

• Build an adequate emergency fund. Financial planners typically recommend having enough money to cover at least 3 to 6 months of expenses, though even a few hundred dollars could spare you from borrowing for small emergencies. 

• Set up an automatic rollover of even a small amount from your checking to savings accounts each month to jumpstart your emergency fund.

• Build good credit by becoming an authorized user on a loved one’s credit card account or opening a secured credit card. You can improve your credit score over time by making punctual loan payments, keeping debts low and limiting short-term credit applications. 

When a Payday Loan Might Be the Only Option

Payday loans might be the only option for Maine borrowers who can’t qualify for any other type of financing. However, they’re still best reserved for high-pressure, time-sensitive financial emergencies, such as imminent eviction, frozen plumbing, boiler breakdowns or car tows or repairs that impact your ability to get to work.

If you must take out a payday loan, these steps can help minimize potential credit and financial damage.

• Borrow from a licensed Maine lender. You can verify licensing through the Nationwide Multistate Licensing System (NMLS).  

• Ask about extended repayment plans (EPPs). Some lenders offer hardship programs that let borrowers in danger of default repay in installments over a longer period. It’s best to pick a lender that offers and charges low-to-no fees for an EPP. 

• Create a budget for your loan’s term that ensures you have enough money to repay on its due date. 

Safer Alternatives To Payday Loans

Credit Cards

Credit cards offer lower APRs than payday loans, averaging around 21%. They also typically provide a 21-day grace period during which you can make purchases without accruing interest. 

Earned Wage Access

Earned wage access (EWA) products let employees access wages they’ve earned in between paychecks. Like payday loans, they don’t require a credit check. Unlike payday loans, they typically charge no or low fees. 

Personal Loans (Banks or Credit Unions)

The APRs on traditional personal loans are much more favorable than the APRs on payday loans, typically ranging from 8% to 36%.

While you often need good-to-excellent credit to qualify, some financial institutions, especially small banks or credit unions, might be willing to lend to local borrowers with less-than-stellar scores.

Maine Community Bank, First National Bank, Maine Savings Federal Credit Union and Connected Credit Union are among the Pine State financial institutions that advertise personal loans on their websites. 

Payday Alternative Loans (PALs)

As part of a broader initiative, credit unions also offer payday alternative loans (PALs). They function the same way as payday loans. Borrowed amounts are small, and you don’t need good credit to qualify. 

However, their terms could be more affordable. APRs max out at 28% and repayment terms typically last up to 12 months. You can inquire about PALs at your local credit union. 

Credit-Builder Loans

A credit-builder loan could help you avoid payday loans in the long term by providing a path to good credit. 

With one, you “borrow” money from a bank, which holds the funds, usually in an interest-bearing deposit account. After you make a set number of installment payments, you receive the funds and potentially some of the interest. In the meantime, the bank reports your payment history to the credit reporting agencies; on-time payments generally boost your credit score.  

State-Specific Assistance Programs

Maine has several assistance programs designed to help Pine Tree State residents during times of financial stress, including:

• Emergency Assistance: This statewide program provides financial aid to families facing hardship or homelessness due to natural disasters, evictions, utility shutoffs, mechanical breakdowns of housing equipment and other emergencies.

• General Assistance (GA): All Maine municipalities have GA programs that help eligible residents who don’t have enough money to cover essential expenses, including food, rent, medicine and utilities. 

• Rental Assistance: The Maine State Housing Authority runs several programs designed to help qualified families pay rent or secure affordable rentals.  

You can learn more about these and other Pine State assistance programs by visiting 211Maine.org, dialing 211 or texting your zip code to 898-211.

Borrowing From Family and Friends

A close friend or family member might be willing to lend you emergency cash for little to no interest if you’re clear about how much you need and draft a formal repayment plan.

It might also help to track payments digitally with peer-to-peer payment apps like Venmo or Zelle.

Side Hustles

Some side hustles could help you quickly make money to cover your cash shortfall. These hustles include selling gently used goods on Craigslist and advertising handyperson services to your neighbors in community forums. 

Conclusion

Payday loans are legal in Maine, though they’re subject to state-mandated interest and fee caps. Even with this legislation, this financing could prove quite costly, carrying what amounts to triple-digit APRs. As a result, it’s a good idea to explore all of your payday loan alternatives, including EWA products, PALs, state-sponsored benefit programs and personal loans for borrowers with bad credit.

Key Terms

• Payday loan: A short-term, high-cost loan that’s usually due on your next payday and often requires access to your bank account for repayment.

• Annual percentage rate (APR): The yearly cost of borrowing, including interest and certain fees, shown as a % so you can compare loan costs more easily.

• Earned wage access (EWA): A service that lets workers access wages they’ve already earned before payday, often with lower costs than payday loans.

• Payday alternative loan (PAL): A small loan from a federal credit union with capped fees, a maximum 28% APR and longer repayment terms than payday loans.

• Credit-builder loan: A loan designed to help you build credit by making payments first, then receiving the loan funds after the term ends.

FAQs

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

Maine doesn’t impose minimum or maximum loan amounts. However, it subjects certain loan amounts to varying interest rate caps. For instance, loans of $2,000 or less can charge up to 30% interest, loans between $2,001 and $4,000 can charge up to 24% interest and loans over $4,000 can charge up to 18% interest. 

What fees and interest rates can payday lenders charge in Maine?

Payday lenders in Maine can charge up to 30% interest on a loan of $2,000 or less. However, they can alternatively charge a flat fee of $5 to $25 for each loan, which can prove quite costly. A $15 finance charge on a two-week, $100 loan, for instance, amounts to a roughly 391% APR. 

How long do payday loans last?

Maine doesn’t explicitly impose minimum or maximum repayment periods for payday loans. However, they’re typically due two to four weeks after their origination date, or within one to two pay periods. 

Will a payday loan affect my credit score?

Payday lenders generally don’t report payments to the credit bureaus, so these loans rarely, if ever, help your credit score. They could damage your credit score; however, if you default, the loan enters collections, and the collector or lender seeks a judgment against you. 

Can I get a payday loan with bad credit?

Payday lenders rarely conduct a credit check, so, yes, you can get a payday loan with bad credit. Generally speaking, you will need access to an active checking account and proof of income, like a pay stub or tax return, to qualify. 

What should I do if I can’t repay my payday loan on time?

You can call your lender immediately to see if they offer an extended repayment plan (EPP), which lets you repay the loan in small installments over a longer period, sometimes for no additional fee. While Maine doesn’t require lenders to offer EPPs, some do anyway. 

Sources

• Legislature.maine.gov - Maine Consumer Credit Code

• Maine.gov - Maine Bureau of Consumer Credit Protection

• lldc.mainelegislature.org - High Interest High Cost Loans Common Sense Guide

• Consumerfinance.gov - What is a payday loan?