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

Payday loans are short-term loans that can tide you over to cover necessary expenses until your next paycheck, but borrowing funds isn’t cheap. Seriously, we’re talking APRs in the triple digits, which means you can easily pay double, triple or more the amount you’re looking to borrow in total.

If you’re looking for a payday loan in New Mexico, the good news is that the state has imposed restrictions on lenders that effectively outlaw the typical predatory payday loan structure. We’ll outline New Mexico’s specific lending options and other alternatives to consider if you’re in a pinch and need cash fast.

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Are payday loans legal in New Mexico?

Payday loans, by their strictest definition, aren’t legal in New Mexico. As of 2017, the state requires that small loans of up to $5,000 must have a minimum repayment term of 120 days. Since payday loans usually require repayment by your next paycheck, they’re now technically illegal in New Mexico. 

That said, some lenders in the state may still market their short-term loans as payday loans, but if they don’t follow the requirements outlined here, they’re probably breaking the law and you should steer clear.

Since 2023, New Mexico has also capped interest rates at 36% APR for loans of up to $10,000.

The risks and dangers of payday loans

Payday loans are convenient, but they’re not consumer-friendly. For one, you’ll pay sky-high interest rates to borrow money, often several times over the amount you were originally looking to borrow. 

Additionally, they can damage your credit if you’re not able to repay the lender in time and your loan goes into default. You can avoid this by contacting the lender immediately if you’re not able to make payment, but you’ll be charged even more fees to extend the due date. But it’s even better to avoid payday loans altogether whenever possible.

How to avoid the payday loan trap

Having a strong credit score is one of your best bets for avoiding the trap of predatory payday loans, since with good credit you’ll be more likely to qualify for a personal loan with a lower interest rate and a longer repayment term.

Planning ahead for unexpected expenses by budgeting and building up your emergency savings are also useful strategies. 

When a payday loan might be the only option

If your credit score is too low to qualify for a loan even with lenders that work with lower-credit borrowers and you don’t have anyone in your life who’s willing or able to lend you money, a payday loan could seem like the only option. Just make sure you explore every other possibility first. Options like credit cards or early earned wage access services may offer a lower-cost path forward.

Safer alternatives to payday loans

There are many safer, cheaper payday loan alternatives worth considering. 

Credit cards

If you have any open credit cards, it’s worth comparing their interest rates to your small loan options to see if they make more sense. If you really only need to borrow money until your paycheck hits, you could charge your necessary expenses to your card without even incurring an interest fee or late fee if your statement balance due date is a ways off.

Earned wage access

Earned wage access services like Instacash let you access up to $500 of your already-earned wages before payday, without interest or mandatory fees. 

Instacash isn’t a loan product, so it won’t affect your credit. You’ll need to repay the balance when your paycheck hits, but the lack of interest makes this an alternative worth exploring.

Personal loans (banks or credit unions)

Don’t assume a standard personal loan isn’t an option, even if your credit could be better. Many lenders serve borrowers with credit scores in the fair to poor range, and your local bank or credit union could be willing to work with you if you have an established relationship. 

Payday alternative loans (PALs)

Credit unions generally offer payday alternative loans (PALs), which are for smaller amounts like payday loans but with interest rates capped at 28% APR. 

Credit-builder loans

If a low credit score is holding you back from getting approved to borrow the money you need at a reasonable interest rate, a credit builder loan could be worth it. With this type of loan, you decide how much you want to borrow up front, then the lender sets that money aside for you until you pay it off in full across equal installments. 

You won’t get the money until you’ve paid off the entire loan, which means this option doesn’t work if you need funds in a hurry. But credit builder loans like MoneyLion Credit Builder Plus can improve your credit score, as your on-time payment history will be reported to the credit bureaus.

State-specific assistance programs

New Mexico runs a variety of programs that can offer financial assistance to eligible residents in need.

• NMWorks: Offers cash assistance to low-income residents with children.

• Low-Income Household Water Assistance Program (LIHWAP): Provides financial assistance to help pay water bills for eligible families.

• NM Child Care Assistance: Financial help covering childcare expenses for eligible residents.

Borrowing from family and friends

It can feel awkward to ask, but you may be able to borrow money from a friend or family member and avoid huge interest rates. Just make sure you’re on the same page about the repayment plan to avoid damaging your relationship.

Side hustles

Picking up a side gig for extra income can eliminate the need for a loan altogether, if you have the time and ability. Side hustles can be anything from driving for Uber to selling items online.

Conclusion

New Mexico sets strict limits on how much interest lenders can charge for small loans, so you should be able to avoid paying 400% APR to borrow cash if you’re in a bind. Remember to explore all your options before committing to a loan. Going through a credit union and researching public assistance programs can be worthwhile, too.

FAQs

Does New Mexico allow payday loans?

No, New Mexico doesn’t allow the standard short-term payday loan. It outlawed payday loans in 2017, when it set a minimum repayment term of 120 days, and later it capped interest rates on small loans at 36% APR.

How long can a debt collector legally pursue old debt in New Mexico?

Debt collectors in New Mexico can legally pursue credit card debt for six years and most other types of debt for up to four years.

Sources

• nmlegis.gov - HB 347 from the 17th Regular Session of the New Mexico Legislature

• nmlegis.gov - New Mexico’s New Small Loan Law — NM Center on Law and Poverty

• financialservicesperspectives.com

• solo.com - Statute of Limitations on Debt Collection in New Mexico

• hca.nm.gov - Looking For Assistance

• newmexicowater.com - Low-Income Household Water Assistance Program

• nmececd.com.org - NM Child Care Assistance