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

Payday loans in Delaware are one of several options if you need money to cover a cash flow gap or an emergency expense. They’re usually not the best option, though. We’ll cover payday loan regulations and your best alternatives below.

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Are payday loans legal in Delaware?

Payday loans are legal in Delaware. Residents can borrow up to $1,000 through a licensed payday lender, and the repayment term must be less than 60 days. If you see a payday lender that doesn’t follow these requirements, it’s probably not licensed and you should stay away.

How payday loans work in Delaware

There’s no APR cap on payday loans in Delaware, so lenders can charge as much interest as they want. According to 2023 data from the Center for Responsible Lending, payday loan APRs in Delaware can go as high as 639%, higher than almost every other state in the country. 

When you take out a payday loan, the lender will typically connect to your bank account to withdraw repayment automatically on your next payday. If you can't repay on time, you can usually extend the due date, but you'll be charged a rollover fee each time you do.

The risks and dangers of payday loans

Payday loans can be harmful and are widely considered predatory because they charge extremely high interest rates to borrow money. Not only that, but if you fall behind on payments, the interest charges can become unmanageable, trapping you in a cycle of debt. 

If you fall far enough behind on repaying the loan, a payday lender could sell off your debt to a collection agency, which would negatively impact your credit score. The damage to your credit score could make it more difficult to get approved for loans and credit cards in the future. And that’s not even mentioning the stress of having a large, unpaid debt hanging over your head.

How to avoid the payday loan trap

Payday lenders are able to charge such high interest rates because their customers often feel like they have no other choice. If you need to borrow money urgently, don’t assume that a payday loan is your only option. Even if you have a low credit score, you may qualify for a lower-interest loan through a bank, credit union or online lender. There are other payday loan alternatives, which we’ll walk through below.

In the long run, the best way to avoid the payday loan trap is to work on improving your credit score and building up an emergency fund so you have savings to cover future surprise expenses.

When a payday loan might be the only option

There are rare cases where a payday loan might be your only viable choice. This could happen if you’ve tried but failed to get a loan through other lenders, aren’t able to borrow money from someone you know and don’t have access to a credit card. 

If you’re in this situation, it’s not the end of the world. Just make sure you know exactly what you’re agreeing to when you sign a payday loan agreement, and do everything you can to repay the loan by its due date so you don’t rack up additional interest charges.

Safer alternatives to payday loans

The following payday loan alternatives are cheaper and safer methods for borrowing money.

Credit cards

In a pinch, a credit card could be a workable solution if there’s an unexpected expense you can’t afford. You’ll usually be on the hook for interest if you can’t pay the card balance off by the next due date, though.

Earned wage access

Earned wage access products like MoneyLion Instacash aren’t loans. Instead, they allow you early access to your already-earned wages, without interest fees or mandatory charges. You could get up to a $500 paycheck advance with Instacash.

Personal loans (banks or credit unions)

Unlike payday loans, regular personal loans from banks or credit unions have interest rates that generally max out at around 36%. They usually come with longer repayment terms, too. Even if you have a low credit score, don’t assume that you won’t qualify for any personal loan options.

Payday alternative loans (PALs)

Credit unions may offer payday alternative loans, which charge a maximum APR of 28%. This is much more reasonable than payday loan APRs, which often reach 300% or more.

Credit-builder loans

With a credit builder loan, you decide on a loan amount, then pay it off in equal installments. You won’t actually get access to the funds until you pay the amount off entirely, but the benefit is that paying off the loan can positively impact your credit score. Payment history is one of the key factors that contribute to your credit score, and most lenders report your credit builder loan payments to the major credit bureaus.

Delaware-specific assistance programs

The state of Delaware offers assistance to eligible residents through the following programs:

• General Assistance: Cash assistance for low-income individuals who don’t qualify for federally funded programs

• Temporary Cash Assistance for Needy Families (TANF): Temporary cash assistance for eligible individuals with families looking for work

• Supplemental Nutrition Assistance Program (SNAP): Food benefits and assistance for low-income families

Borrowing from family and friends

You may be able to borrow money from a family member or close friend. This would help you avoid high fees and usually entails much lower interest rates, if any.

Side hustles

If you’re in a position to take up a side hustle like driving for Uber or delivering for DoorDash, you could earn enough extra cash to cover extra expenses. Increasing your earnings can also help you build your savings while avoiding the burden of owing money through a loan or credit card balance.

Conclusion

While payday loans are legal in Delaware, they’re usually not the cheapest or best option if you need to borrow money. Make sure you explore all your options, including payday alternative loans, credit cards and earned wage access.

FAQs

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

The maximum payday loan amount you can borrow in Delaware is $1,000.

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

Payday lenders in Delaware aren’t capped in how much interest they can charge. This means payday loans can be an incredibly expensive option.

How long do payday loans last?

Payday loans in Delaware can last as long as 60 days, according to state regulations.

Will a payday loan affect my credit score?

A payday loan will only affect your credit score if you don’t pay it back and the payday lender sells your loan to collections. This can result in a negative mark on your credit report.

Can I get a payday loan with bad credit?

You can usually get a payday loan with bad credit, since payday lenders often don’t require a credit check. That doesn’t mean they’re your best option for borrowing money, though, especially since they have notoriously high interest rates.

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

If you can’t repay your payday loan on time, reach out to your lender immediately to let them know. You can usually push back your due date, but you’ll be charged a steep rollover fee.

Sources

• National Conference of State Legislatures

• Center for Responsible Lending

• U.S. Department of the Treasury - Community Development Financial Institutions Fund

• Delaware.gov