Payday Loans in Philadelphia: Laws To Know and Safer Alternatives

Payday loans are effectively banned in Philadelphia. Because lenders often charge triple-digit annual percentage rates (APRs) while the local cap is 24%, it’s difficult for these lenders to operate legally. As a result, borrowers may consider safer alternatives in Philadelphia, including personal loans, credit union loans, cash advances and community resources. Here’s what to know about payday loans in Philadelphia, along with safer options to consider.

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Payday Loans in Philadelphia: At a Glance

• Legal status: Payday loans are illegal in Philadelphia.

• Interest rates: State law limits interest to about 6% for unlicensed lenders and up to 24% for licensed lenders, effectively prohibiting high-cost payday loans.

• Loan amounts: Licensed lenders may offer larger installment loans, often up to $25,000, depending on the lender and qualifications.

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

Licensed Installment Loans in Philadelphia — A Legal Alternative

Licensed installment loans are a legal alternative to payday loans in Philadelphia, with key differences in cost and structure.

Online Licensed Installment Loan Costs in Philadelphia

Here’s what you can expect to pay with a licensed installment loan in Philadelphia:

Interest Caps

• Unlicensed loan: Up to 6%

• Licensed loans up to $25,000: Up to 24%

Fees

• Origination charges: Usually 1% to 10% of the loan amount

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

• Prepayment penalties: None

Risks of Using Illegal Payday Lenders

Before getting a payday loan, it’s important to understand the risks associated with illegal payday lenders:

• Higher interest and fees: Generally, 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 the payment.

• Unlicensed lenders: Lenders may not be licensed, and this may lead to fewer consumer protections.

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

Alternatives to Payday Loans in Philadelphia

If you need to borrow, there are safer and more affordable alternatives to payday loans:

Cash Advance Apps

There are many types of cash advance apps. One, for example, is Instacash® from MoneyLion. This app lets users access small amounts of money when they need cash. Like other 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. Credit Builder loans from MoneyLion, for example, give 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: 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.

Consumer Loans

You can find an alternative to payday loans with consumer loans. These loans have lower interest and offer consumer protections that payday loans don’t always provide.

• Loan amount range: Up to $50,000

• APR cap: Up to 24% for licensed lenders and up to 6% for unlicensed lenders

• Credit requirements: You’ll need to provide proof of income, have an account in good standing and have fairly good credit at the time of applying.

• Repayment term: Dependent on agreement with lender 

Rental Assistance

If you’re having trouble paying rent, rental assistance programs may offer short-term relief. 

• Who offers it: Office of Homeless Services, PHLHousing+ and BenePhily

• Cost: None

• Qualification: Varies based on the amount owed

How To Choose the Right Option

Choosing the right option depends on your needs. Understanding what you need for a payday loan can help you compare these options and decide what fits your situation:

Key Takeaways

• Philadelphia prohibits payday loans.

• For unlicensed lenders, interest rates are capped at around 6%.

• Licensed lenders can offer consumer loans up to $25,000, with interest rates capped at 24%.

• There are alternative loan options in Philadelphia, including credit builder loans, cash advance apps, and consumer loans.

Payday Loans in Philadelphia FAQs

These FAQs cover key details about payday loans and borrowing in Philadelphia. 

Are payday loans legal in Philadelphia?

Payday loans are illegal in Philadelphia and throughout Pennsylvania.

What is the maximum loan amount in Pennsylvania?

Licensed consumer loans are available for up to $25,000. Smaller loans are available from $500 to $2,000.

What happens if I use an illegal lender?

Operating as an unlicensed lender is illegal, and these loans are generally considered void and unenforceable.

Can I get emergency cash legally in Philadelphia?

You can get a cash advance, a credit union loan or apply for a grant.

Sources

• Commonwealth of Pennsylvania. "CHAPTER 13. LOANS."