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

Payday loans in New Jersey are probably not your best bet if you need to borrow money before your paycheck. Not only do they charge unreasonably high interest rates, but they’re also technically illegal in the state. So if you see a lender offering a short-term loan with an APR in the triple digits, they’re probably unlicensed. 

The good news is that there are safer, cheaper ways to get a payday advance in New Jersey, whether that’s earned wage access or an instant loan online. Let’s explore your best options.

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Are payday loans legal in New Jersey?

Payday loans are illegal in New Jersey. This means no licensed lenders in the state offer them, and no licensed lender should charge payday-loan level APRs.

The risks and dangers of payday loans

Payday loans are considered predatory because they cater to those who need cash fast and may not have many other options. Beyond the drawback of extremely high interest rates, payday loans can trap you in a cycle of debt if you can’t repay the money you borrow by the due date. And if you end up defaulting on the loan, your debt can be sold to collections and your credit score could suffer as a result. 

How to avoid the payday loan trap

Your strongest defense against the payday loan trap is having an emergency fund so you can use your savings rather than a loan when emergencies or unexpected expenses come up. Experts generally recommend having three to six months’ worth of expenses saved up, but anything is better than nothing. Additionally, if you don’t have a budget in place, it’s worth creating one and sticking to it so your monthly spending is less than your income.

When a payday loan might be the only option

A payday loan is never an option in New Jersey, so you’ll always have an alternative. That could be anything from a short-term loan with better terms to a credit card, as we discuss below.

Safer alternatives to payday loans

There are various payday loan alternatives, and all of them are better choices than payday loans.

Credit cards

Instead of taking out a loan, you could use your credit card as a short-term loan by paying with it and repaying your balance a bit later, when the due date comes up. If you’re just a few days away from payday, you can pay off your balance as soon as your paycheck clears. Just avoid carrying a balance from month to month, because credit cards can charge hefty interest rates, too.

Earned wage access

Products like Instacash aren’t loans, but rather they offer you early access to your already-earned wages before your paycheck hits. What makes them an especially appealing option is that they don’t charge interest or mandatory fees. You can access up to $500 of your earned wages early, and you’ll repay the money after payday.

Personal loans (banks or credit unions)

You could qualify for a standard personal loan through a bank or credit union, with lower interest rates, higher loan amounts and longer repayment terms than payday loans.

Payday alternative loans (PALs)

A payday alternative loan (PAL) is another option. This loan type is offered by credit unions, and the maximum interest rate they can charge is 28% APR.

Credit-builder loans

If your payday loan alternatives feel limited because you have a lower credit score, it could be worth using a credit builder loan to boost your score over time. With this type of loan, you won’t get the funds until you pay off the entire amount in installments. The advantage is that your positive payment history can improve your credit score in the long run. 

One such loan is the MoneyLion Credit Builder Plus, a membership program that comes with extra tools and insights for managing your credit.

State-specific assistance programs

New Jersey offers eligible residents assistance through the following programs:

• Work First New Jersey: Provides monthly cash, job search help and other support.

• Low Income Home Energy Assistance Program (LIHEAP): Offers assistance toward heating bills and cooling costs.

• Supplemental Nutrition Assistance Program (SNAP): Can help pay for food at supermarkets and other approved stores.

Borrowing from family and friends

Getting a loan from friends or family could also tide you over until your next paycheck. Just be clear about how and when you can repay them.

Side hustles

Taking on a side hustle is a great way to make extra money and pad your savings in the long run. You could deliver for Uber Eats or sell old items online, among other options.

Conclusion

Payday loans in New Jersey aren’t even a legal option, which is a good thing for residents looking to borrow money without sky-high interest charges. There are several strong alternatives you can consider, from payday alternative loans to credit cards. 

FAQs

Are payday loans legal in New Jersey?

No, payday loans have been banned in New Jersey. 

What is the statute of limitations on a payday loan in New Jersey?

The statute of limitations for all debts in New Jersey is six years. Debt collectors can’t file a lawsuit to collect debt that’s more than six years old.

Sources

• Young, Marr, Malis & Associates - What is the Statute of Limitations on Debt in NJ?

• Consumers League of New Jersey - Payday Loans

• New Jersey Department of Human Services - Work First New Jersey

• New Jersey Division of Housing and Community Resources - Utility Assistance Programs

• New Jersey Department of Human Services - NJ SNAP