Online Payday Loans in Vermont: Are They Legal? Laws and Safer Alternatives

Vermont takes a strict approach to payday loans, making it difficult for borrowers to access traditional short-term loans in the state. While payday loans aren’t explicitly banned, the regulations are so tight that they’re rarely available. If you need quick cash, it’s important to understand all your options — from unconventional lending solutions to safer alternatives like personal loans.

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Online Payday Loans in Vermont: At a Glance

• Legal status: Vermont’s interest rate caps and small loan regulations make it difficult for lenders to offer payday loans.

• Interest rate cap: The general legal rate is 12%, while licensed consumer loans are capped at 24% — far below typical payday loan rates.

• Loan amounts: Small loans are allowed up to $2,500.

• Repayment terms: Loans must follow installment-style repayment with longer timelines, rather than lump sum payments.

• Alternatives: You can opt for installment loans, credit union loans, personal loans or hardship assistance.

Installment Loans in Vermont: A Legal Alternative to Payday Loans

While many borrowers search for how to get a payday loan, Vermont’s strict lending laws mean these options are largely unavailable. Installment loans work differently but may be a good alternative.

How Installment Loans Work in Vermont

Installment loans work differently from payday loans because they are repaid through scheduled payments over time.

• Term length: Can be from 6 months to 60 months

• Amount limits: Regulated lenders can offer loans up to $25,000.

• Repayment structure: Payments may be spread out over 6 months or more.

• Interest cap rules: Most loans fall between 12% to 18%. For some small lenders, the rate is capped at 24% for the first $1,000 and then subsequently 12%.

• Who regulates lenders: The lenders are governed by the Vermont Department of Financial Regulation (DFI).

Costs of Installment Loans in Vermont

Installment loans in Vermont come with regulated interest rates and limited fees. Here’s a breakdown of the main costs to consider.

Interest Caps

Fees

• Origination fees: None

• Late fees: Lesser of $15 or 5% of the installment payment

• Prepayment penalty: None

Quick Cost Example

If your loan amount is $1,500 and your interest is 20%, expect to pay $168 in interest. Your total repayment amount will be $1,668.

Risks of High-Cost Online Payday Loans

Even though payday loans are largely unavailable in Vermont, high-cost online loans can still pose risks for borrowers.

• Higher interest and fees: Generally, online payday loans have higher interest rates and fees.

• ACH authorization: Many short-term loans require ACH authorization, which means lenders can automatically withdraw funds from your checking account to satisfy a payment.

• Unlicensed lenders: Lenders can be unlicensed, and this may lead to fewer consumer protections.

• Debt cycle: Timelines that are short, plus fees and interest with a payday loan, may cause you to be in a debt cycle for long periods of time.

Safer Alternatives to Online Payday Loans in Vermont

Before considering a payday loan, it’s worth exploring payday loan alternatives that may come with lower costs and more protections

Cash Advance Apps

There are several types of cash advance apps available. For example, Instacash® from MoneyLion lets users access small amounts of money when they need cash. Like many similar apps, it can be used whenever short-term funds are needed.  

• Limit range: $25 to $100, depending on eligibility

• Cost structure: Many cash advances are interest-free, but there are optional tips and transfer fees if you need the funds within minutes.

• Credit impact: Typically, no credit check

• Repayment timing: Repayment is taken from your next paycheck.

Credit Builder Loans

A credit builder loan can help you build your credit while allowing you to save or access a portion of the funds. For example, MoneyLion offers a Credit Builder loan that gives CB Plus members access to credit-building tools designed to strengthen their credit as they make on-time payments.

• Loan amount range: Up to $1,000

• Cost structure: Fixed monthly payments over 12 months

• Credit impact: Paying consistently on time can help boost your credit score.

• Repayment term: With many credit builder loans, the borrowed funds will be kept in a savings account while you make monthly payments. Once the loan is repaid, the funds are released to you.

Credit Union Small-Dollar Loans

You can find an alternative to payday loans if you’re a member of a credit union. These loans generally come with consumer protections that payday loans don’t always provide.

• Loan amount range: $200 to $2,000

• APR cap: From 10% to 28%

• Credit requirements: You’ll need to be a member of a credit union, provide proof of income and have an account in good standing. You don’t need excellent credit to apply. These requirements are similar to what you need for a payday loan, but often come with stronger consumer protections.

• Repayment term: One to twelve months 

Rental Assistance

If you’re having a hard time coming up with funds to pay rent or basic expenses, there are ways you can get help.

• Who offers it: Rental assistance is offered by Capstone Community Action or CVOEO.

• Cost: None

• Qualification: Qualification is based on household income and demonstrated crisis.

How To Choose the Right Option

The best borrowing option depends on how much money you need and how quickly you can repay it.

Key Takeaways

• Payday loans are illegal in many states. Vermont has strict regulations that make it basically impossible for lenders to offer them.

• Some high-cost or unregulated lenders may still operate online, posing risks to borrowers.

• High-cost loans can potentially damage your credit score and leave you paying a lot more than you initially expected.

• You don’t need to settle for any of these dangerous loans. Safer alternatives – such as credit builder loans and personal loans — are available.

Vermont Online Payday Loans FAQs

Here are answers to common questions about payday loans and borrowing alternatives in Vermont.

Are payday loans banned in Vermont?

While there isn’t technically a ban on Vermont payday loans, the interest rate caps and licensing laws make it almost impossible for lenders to offer this style of loan.

Can out-of-state lenders legally lend in Vermont?

Out-of-state lenders can lend to consumers in Vermont, but only if they are licensed by the Vermont DFI.

What happens if I default?

If you default on a loan in Vermont, there are additional protections that aren’t available in other states.

• If the loan is deemed illegal, you may not owe anything.

• If the loan is legal and you default, you’ll be responsible for late fees. Your debt may also be referred to a collection agency and you may face legal action.

What is Vermont’s interest cap?

Generally, the interest cap is 24% for the first $1,000 and 12% for loans that exceed $1,000.

Sources

• Vermont General Assembly. "The Vermont Statutes Online."

Jacinta Majauskas contributed to the reporting for this article.