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

Payday loans in North Dakota, and throughout the US, are a controversial lending option. While they can offer fast cash with easy approval, they charge very high interest rates and can wreak havoc on your credit if you default on payments.

North Dakota has payday loan regulations that dictate how much you can borrow, how lenders can collect payment and the maximum interest you’ll pay. We’ll go through those rules as well as payday loan alternatives worth considering.

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Are payday loans legal in North Dakota?

It’s legal to take out a payday loan in the state of North Dakota, but payday lenders must follow certain guidelines. For instance, the maximum payday loan amount is $500, and lenders can’t approve additional loans to anyone who owes $600 in payday loans across all payday lenders. North Dakota payday loan interest rates are also capped at a sky-high 520% APR.

Payday lenders in North Dakota can legally charge fees up to 20% of the loan amount. The state doesn’t have a hard limit on the term length for payday loans, but this type of loan is generally short-term, with the expectation that you’ll pay it back at your next payday within a few weeks.

How payday loans work in North Dakota

Payday loans cater to borrowers looking for fast access to cash when their credit isn’t strong enough to qualify for other, lower-interest borrowing options. These are short-term loans for relatively small amounts of money. 

As their name suggests, payday loans are usually repaid by your next payday. So you can’t take out a payday loan and pay it off over several years (not that you’d want to accrue interest for that long given the high APRs on these loans, anyway). When you take out a payday loan, you’ll usually be asked to give the lender permission to automatically withdraw the funds you owe from your bank account on an agreed-upon date.

The risks and dangers of payday loans

While payday loans can seem like a quick fix, they charge astronomical interest rates, and if you can’t make payments, there could be long-term consequences for your credit score and credit report.

If you default on your payday loan, the lender can sell your debt to a collections agency, which will then follow up on pursuing repayment. A default can stay on your credit report for several years and lead to a big dip in your score. 

If you can’t keep up with your repayment, you can also request a payday loan rollover to extend the due date. This is marginally better than letting your debt go to collections, but you’ll pay a fee to extend the repayment date, which can keep you in a cycle of debt with enormous fees that continue to pile up.

How to avoid the payday loan trap

To avoid a situation where a payday loan feels like the only option, start working on building your credit as soon as possible. Your credit score is possibly the most important number in your financial life, and the higher it is, the better interest rates you’ll qualify for when you’re looking to borrow money for a personal loan or mortgage. If your credit score is in good enough shape, you may be able to get a better loan option in a pinch than a payday loan. It’s always worth checking before assuming a payday loan is the only choice you have.

Creating a budget that keeps your spending lower than your total earnings is also key to avoiding the payday loan trap. This also allows you to build an emergency fund, so you have savings that can cover any unexpected expenses.

When a payday loan might be the only option

A payday loan is rarely the only option for borrowing money quickly, but this could be the case if you’ve already explored every alternative. For instance, if you’ve applied for other personal loans and been denied, don’t have access to a credit card and don’t have a relative or friend who can lend you money, a payday loan may be your last resort. 

If this is the case, make sure you review the terms carefully before you sign the loan agreement. You should feel as confident as possible that you’ll be able to repay the borrowed funds by your next payday to avoid accumulating even more interest.

Safer alternatives to payday loans

There are several payday loan alternatives you should consider to avoid outrageous interest rates.

Credit cards

If you have a credit card, it could be worth charging your emergency expenses to your card rather than taking out a payday loan. Credit cards have high interest rates for balances that aren’t paid off by the due date, but the APR is likely lower than a payday loan. Plus, credit cards can function as short-term loans if you know you’ll have the money to pay off your statement when the balance is due, since there’s a delay between your charge and the payment date.

Earned wage access

MoneyLion Instacash offers you cash advances on your paycheck of up to $500 with no interest and no credit check. You can get money for free within 1 to 5 business days or pay an optional fee for instant access. For repayment, you simply link your bank account, and MoneyLion will align with your paycheck schedule for withdrawing funds. 

Personal loans (banks or credit unions)

Non-payday personal loans are another option worth considering. Even if you have a low credit score, you may be able to get approved for a personal loan through a bank or a credit union with lower interest rates and better terms. Many online lenders let you prequalify to check your rates and approval odds without impacting your credit score.

Payday alternative loans (PALs)

Payday alternative loans (PALs) are small personal loans offered by credit unions and banks that offer much lower interest rates than payday loans. You may be able to find interest rates capped below North Dakota’s maximum payday loan APR of 520%.

Credit builder loans

You can also look into credit builder loans, which are designed for those looking to build or repair their credit. With a credit builder loan, you’ll agree to pay off a small amount across regular payments and will get the loan funds after you’ve paid that amount off in full. Your on-time payments will be reported to the credit bureaus, which can boost your credit score over time.

A MoneyLion Credit Builder Plus loan with a paid membership also gets you access to tools that can help you build your credit health.

State-specific assistance programs

Before taking out a payday loan in North Dakota, you should review the state’s financial assistance programs to see if you qualify for any. These include:

• Community Action Agencies: There are both state-wide and county-specific programs offering assistance to low- and middle-income families in North Dakota.

• Low Income Home Energy Assistance Program (LIHEAP): Offers assistance to eligible families to cover electricity costs, weatherization services and more.

• Temporary Assistance for Needy Families (TANF): Provides cash assistance and job placement services to eligible families with children.

Borrowing from family and friends

You could also turn to a trusted family member or loved one who’s able to lend you funds. If you move forward with this option, make sure you have a clear agreement up front to avoid any misunderstanding. 

Side hustles

Picking up a side hustle is another strong payday loan alternative, and it can help you bring in extra income even after your financial emergency passes. You could drive for Uber, deliver orders for Grubhub or sell items online to make some extra cash. 

Conclusion

Payday loans are easy to get approved for, but you’ll pay dearly to borrow money with their enormous interest rates and extra fees. Make sure you research all of your options in depth before deciding a payday loan is your best choice. 

FAQs

What is the maximum loan amount I can borrow in North Dakota?

The maximum payday loan amount you can borrow in North Dakota is $500. The maximum outstanding balance limit for payday loans in the state is $600 total across all lenders.

What fees and interest rates can payday lenders charge in North Dakota?

Payday lenders in North Dakota can charge borrowers fees of up to 20% of the loan amount.

How long do payday loans last?

Payday loans are short-term loans that must be repaid by your next paycheck to avoid extra fees and interest.

Will a payday loan affect my credit score?

A payday loan will affect your credit score if you don’t pay it back. In that case, the lender may sell your debt to a collections agency, and your loan default will be reported to the credit bureaus.

Can I get a payday loan with bad credit?

It’s possible to get a payday loan with bad credit, but it should be avoided unless it’s truly your only option. Payday loans in North Dakota can charge astronomical interest rates of up to 520% APR.

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

If you can’t repay your payday loan on time, contact your lender immediately. They may be able to offer you an extended repayment term, but you may have to pay additional fees or interest. Still, this is better than letting your loan default and go to collections.

Sources

• nd.gov - Official Website of North Dakota - FAQ Page

• legalfix.com - Payday Loans and Title Loans

• capnd.org - Community Action Agencies

• hhs.nd.gov - Low Income Home Energy Assistance Program (LIHEAP)

• hhs.nd.gov - Temporary Assistance for Needy Families (TANF)