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

If you’re looking for a payday loan in North Carolina, you’ll need to consider options. The state has outlawed this loan type, but that’s actually a good thing for your wallet. 

Payday loans are known for charging ridiculously high interest rates, so they’re generally not the best option, even if you’re in a pinch. We’ll walk you through the best payday loan alternatives if you need an advance on your paycheck to cover unexpected expenses or a cash flow gap.

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Are payday loans legal in North Carolina?

Payday loans are illegal in North Carolina. The state has some firm rules governing what lenders are allowed to charge, too. 

For loans of $12,000 or less, licensed lenders can charge a tiered interest rate of up to 33% annually on the first $4,000 of the loan, up to 24% on the portion of the loan between $4,001 and $8,000 and 18% on the remainder of the principal balance. For loans of more than $12,000, lenders can charge up to 18% in annual interest.

For loans of $3,000 or less, lenders can charge up to $30 as a processing fee. For loans above $3,000, the fee is $150 or 1% of the loan amount, whichever is less.

If you’re in North Carolina and you find a loan option that doesn’t meet these terms, you’re probably looking at an unlicensed lender and should steer clear.

The risks and dangers of payday loans

Payday loans are considered predatory because of the incredibly high interest rates they charge to borrowers who often have limited options for getting money quickly. They can also wreak havoc on your credit and finances if you aren’t able to repay the money you borrowed by the due date. You’ll incur extra interest on top of the already-high amount you’re paying, and you could end up trapped in an expensive (and extremely stressful) cycle of debt. 

If you can’t repay a payday loan, your debt could be sent to collections, in which case your credit score will suffer and it could take years to recover. Basically, payday loans are best avoided whenever possible.

How to avoid the payday loan trap

Payday loans are rarely the only option. The best way to avoid needing a payday loan or another high-interest loan is to plan ahead for financial emergencies by following a budget and building up an emergency savings fund. That’s not always possible, though, so if you’re in a situation where you need a payday advance, there are other alternatives to tide you over. We’ll discuss those in depth below.

When a payday loan might be the only option

Payday loans aren’t even a legal option in North Carolina, so they’re truly off the table for residents of the state. But a high-interest loan similar to a payday loan may be the only option if you have a low credit score and you’ve already exhausted other options, such as qualifying for a more reasonable personal loan through a reputable lender, using a credit card or borrowing money from a friend.

If your only option is to borrow money with a high-interest loan, make sure you’ll be able to repay the funds in time to avoid racking up additional interest. 

Safer alternatives to payday loans

There are several payday loan alternatives, and all of them are better than payday loans with interest rates in the triple digits.

Credit cards

Credit cards charge high interest rates, but if you’re looking at a payday loan, you’d need to repay the money quickly anyway, so this might not be an issue. If you have a credit card, you can use it to pay for any necessary expenses and then pay your statement balance off once you get your paycheck. 

Earned wage access

Some services, such as MoneyLion’s Instacash, let you get early access to your earned wages in your upcoming paycheck. These services typically don’t charge any interest, and it’s usually easy to qualify. If you need to access up to $500 of your earned wages, this is an option worth looking into.

Personal loans (banks or credit unions)

Don’t write off regular personal loans, even if your credit isn’t in great shape. Many lenders, including banks, credit unions and online lenders, approve applicants with credit scores in the fair or even poor range. Some lenders even let you prequalify to check if you’re eligible and preview your interest rates and terms without impacting your credit score.

Payday alternative loans (PALs)

Your credit union may offer payday alternative loans that let you borrow a small sum of cash until your next paycheck. These have interest rates capped at 28%, so nowhere near the rates charged by payday lenders. 

Credit-builder loans

A credit builder loan has the benefit of improving your credit score over time if you make on-time payments, but it might not be the most useful option if you need money immediately. With this type of loan, you actually don’t get access to the funds until you’ve made all payments. But it’s worth keeping in your back pocket as an option if you want to improve your score, since the lender will report your on-time payments.

State-specific assistance programs

You could be eligible for one of the following state-run assistance programs in North Carolina:

• Temporary Assistance for Needy Families (TANF): Offers emergency assistance and employment services to qualifying families. 

• Work First Emergency Assistance: Helps qualifying families with children facing emergency needs, such as a utility cut-off or an eviction notice.

• Low Income Energy Assistance (LIEAP): Provides one-time financial assistance to help eligible households cover their heating bills.

Borrowing from family and friends

If you want to go the less-official route, you could ask to borrow money from friends or family. Just make sure everyone is very clear on the terms and repayment plan up front to avoid any bad blood.

Side hustles

Another option is picking up a side hustle, such as tutoring or driving for Uber. You’ll have to be honest about your time and bandwidth, but the upside is extra income that can pad your savings account beyond just paying for any emergency that comes up.

Conclusion

Payday loans are never your best option for borrowing money, and you have other, better options for getting cash fast in North Carolina. It’s always worth exploring multiple choices and multiple lenders to find the best terms possible before making a final decision.

FAQs

Does North Carolina allow payday loans?

No, North Carolina doesn’t allow payday loans. Along with several other states, North Carolina has made payday loans illegal, though that doesn’t mean unlicensed lenders won’t offer you loans with exorbitantly high interest rates. Make sure to steer clear of any lender that isn’t licensed. 

How long before debt is uncollectible in North Carolina?

In North Carolina, debt becomes uncollectible after three years. This period begins on the date when you originally defaulted on your debt.

Are debt collectors banned in North Carolina?

Debt collectors aren’t banned in North Carolina, but they have to follow state and federal regulations regarding how and when they can contact you. They can reach you between the hours of 8 a.m. and 9 p.m., but they’re not allowed to threaten you or tell your employer about your debts.

Sources

• North Carolina Department of Justice - Payday Loans

• Mayer Brown - North Carolina Consumer Finance Act Amendments Now Effective

• North Carolina Department of Health and Human Services - Temporary Assistance for Needy Families State Plan

• North Carolina Department of Health and Human Services - Work First Emergency Assistance

• North Carolina Department of Health and Human Services - Low Income Energy Assistance