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

If you live in Pennsylvania, are facing a pressing cash shortage, and can’t find financing, you might wonder if you should take out a payday loan. 

These short-term, small-dollar loans of $1,000 or less are frequently pitched as a way to bridge income gaps. However, to protect borrowers from their notoriously high costs, the Keystone State has long prohibited payday lenders. 

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

Are payday loans legal in Pennsylvania?

Payday loans are not legal in Pennsylvania. They were banned by the Check Casher Licensing Act of 1998, which expressly forbids licensed lenders from advancing money on a post-dated check and caps check-cashing fees at 10% of the check’s face amount. 

The commonwealth has a separate, longstanding usury law that prevents licensed lenders from charging an annual interest rate over 24% on all loans of $25,000 or less.   

Payday lenders offering online loans to Pennsylvania residents are generally unlicensed and doing so illegally.  

The risks and dangers of payday loans

Pennsylvania is one of about 20 U.S. states that have outright banned or imposed restrictions on payday loans to shield vulnerable borrowers from their unique risks. These include:

• High fees equating to annual percentage rates (APRs) of nearly 400%

• Short repayment terms of two to four weeks 

• Rollover or renewal options that tack on new fees and increase total borrowing costs

• Automatic bank withdrawals that could lead to fees and even account closures

• Low-to-no barriers of entry, upping the likelihood of a borrower getting a loan they can’t repay

Given these characteristics, payday loans are commonly considered a debt trap. Per The Pew Charitable Trusts, their average borrower is in debt for five months each year and spends $520 in fees to recurrently borrow $375. 

Defaulting on a payday loan might lead to debt collections, lawsuits, wage or bank account garnishments and heavy damage to your financial health and credit score.

How to avoid the payday loan trap

These steps could minimize your odds of taking out a payday loan or other pricey financing:

• Build and maintain good credit by opening a secured credit card, making timely payments and restricting usage to 10% of your credit limit. 

• Have an emergency fund of at least three to six months' worth of expenses, ideally in a high-yield savings account.

• Draft and regularly rebalance your budget to readily identify bill or lifestyle creep and ensure you have enough cash flowing toward essentials. 

• Negotiate with creditors and service providers. Both often offer hardship programs that can help during times of need. Columbia Gas of Pennsylvania and UGI Utilities offer payment plans and debt forgiveness through the state’s Low-Income Home Energy Assistance Program (LIHEAP), for example.  

When a payday loan might be the only option

Payday loans might serve as a last resort in the 30 states that still allow them, but their use cases are best limited to financial emergencies. Say, for instance, an unexpected job loss or income drop has left you short on cash for essentials, like medication, gas or groceries. 

If you move outside of Pennsylvania and you must borrow from a payday lender, these steps could help you avoid a debt spiral: 

• Know what you owe and when exactly the lender can debit your bank account for repayment to avoid costly overdraft, returned payments or nonsufficient funds fees. 

• Determine if the lender offers an extended repayment plan (EPP), which affords you more time to repay without incurring additional charges. Some states require payday lenders to offer EPPs by law. 

• Consult a nonprofit credit counselor if your financial outlook feels dire. Reputable agencies can advise you on money management and negotiate with creditors on your behalf, though the latter service, in particular, tends to cost a fee.   

Safer alternatives to payday loans

If you live in Pennsylvania and need fast cash, consider these safer payday loan alternatives.  

Credit cards

The average credit card interest rate is currently around 21%, which is notably lower than that of a payday loan.

Plus, depending on your credit, you might qualify for a 0% introductory APR credit card that affords you some time, usually 12 to 21 months, to pay off charges without accruing interest. A few 0% interest cards consider people with fair credit.  

Earned wage access

Earned wage access (EWA) products allow you to tap accrued wages ahead of payday. Instacash, an EWA product from MoneyLion, offers access to up to $500 of your paycheck before you get paid, without interest or mandatory fees. You also don’t need to undergo a credit check. 

Personal loans (banks or credit unions)

Personal loans typically carry fixed APRs between 8% and 36%, and, contrary to popular belief, there’s a chance you could qualify with imperfect credit. 

Brentwood Bank, Ameriserv Bank and First Keystone Community Bank are small and mid-sized financial institutions that offer unsecured personal loans to Pennsylvania residents.

Payday alternative loans (PALs)

The Philadelphia Federal Credit Union, North East Welch Federal Credit Union and Forage Credit Union are among the Pennsylvania-based cooperatives that offer payday alternative loans (PALs).

These small-dollar loans charge lower APRs, capped by the National Credit Union Administration at 28%, and offer longer repayment windows of up to 12 months. 

Credit-builder loans

A credit-builder loan, essentially a hybrid between a secured loan and a certificate of deposit (CD), won’t address short-term cash needs, but it can help you avoid pricey loans in the future since they have a low barrier to entry and banks report payments to the credit bureaus. 

You can access a credit-builder loan with a MoneyLion Credit Builder Plus membership. 

State-specific assistance programs

Pennsylvania has several strong state programs for residents experiencing financial hardship, including:

• Temporary Assistance for Needy Families (TANF) provides up to 60 months’ worth of cash assistance per lifetime for pregnant women and adults with dependent children.

• Diversion provides a one-time lump sum payment to TANF-eligible families who need to bridge a short-term income gap.

• Refugee Cash Assistance provides up to eight months of cash assistance from the date of entry into the U.S. to refugees who are ineligible for TANF.

You can apply for these and other assistance programs through the state Department of Human Services’ COMPASS portal. 

Borrowing from family and friends

A friend or family member might agree to front you some funds at low to no interest. To preclude issues down the road, you could draft a loan agreement that clearly outlines what you’ll owe and when you’ll repay.

Side hustles

You could bring in new income to address short- and long-term cash shortfalls by driving for rideshare apps, selling gently used goods through online consignment shops and advertising your handyperson availability on community forums and social media groups.

Conclusion

Pennsylvania banned payday loans back in 1998 to protect its borrowers from pricey APRs, fees and long-term debt spirals. Keystone State residents, however, have plenty of good options if they need fast, small-dollar emergency credit, including EWA products, local credit union PALs and state-sponsored cash assistance. 

If you’re looking for more traditional financing but fear you won’t get approved, you could try pre-qualifying for these personal loans for bad credit.     

FAQs

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

Pennsylvania doesn’t have a blanket legal maximum loan amount, but it does prohibit licensed state lenders from charging an interest rate over 24% on loans of $25,000 or less. It also bans payday loans by not allowing advances against post-dated checks.

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

Payday lenders are prohibited from doing business in Pennsylvania following the passage of a usury law that forbids check cashers from advancing money against a post-dated check. Check cashers can only charge a fee of up to 10% of the check’s face amount. 

How long do payday loans last?

Many payday loans are due two weeks after their origination date, or, put another way, on your next payday. Some have longer repayment periods of up to 4 weeks. 

Will a payday loan affect my credit score?

Payday loans can affect your credit score if you don’t repay them as agreed and the lender or a debt collector takes adverse action against you, such as seeking a wage garnishment, which appears on your credit report. They’re unlikely to have a positive impact on your score as payday lenders rarely, if ever, report repayments to the credit bureaus. 

Can I get a payday loan with bad credit?

You can’t get a payday loan with bad credit in Pennsylvania, as the state bans all forms of payday lending. In states without such restrictions, payday lenders generally don’t perform traditional credit checks, so, yes, you can get one with bad credit. However, given their high costs, it’s still worthwhile to consider alternatives, like EWA programs or PALs.

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

Call your lender immediately to see if they offer an extended repayment plan (EPP). Some states that permit payday loans require lenders to offer these plans for no additional fee. They allow borrowers to convert a single-payment payday loan into an installment loan with two or more monthly payments. 

Sources

• Palegis.us - Check Casher Licensing Act of 1998

• Pew.org - Pew Charitable Trusts

• Fred.stlouisfed.org - Federal Bank of St. Louis

• Compass.dhs.pa.gov - Department of Human Services’ COMPASS portal

• Pa.gov - Commonwealth of Pennsylvania Governor’s Office of General Counsel memo

• Liheapch.acf.gov - Low-Income Energy Programs

• Consumerfinance.gov - Consumer use of State payday loan extended payment plans, CFPB report