Payday loans have been prohibited in Arizona for over a decade. In fact, the law that once allowed payday loans in Arizona expired on June 30, 2010. The following day, July 1, 2010, any type of consumer loans with APRs over 36% became illegal. Instead, many people with poor or no credit who once turned to payday loans in AZ for quick cash today must seek other types of loans, such as varying types of fast, easy short-term personal loans.
History of Payday Loans
Payday loans were made illegal due to their notorious high-interest rates and predatory lending practices. They were designed to help cover immediate cash needs with a small loan ($100-$1000) until the next paycheck but came with triple-digit APRs (annual percentage rates) sometimes as high as 400%, and payments usually due within two weeks or the next payday. As noted by the Consumer Financial Protection Bureau (CFPB), the loans essentially targeted cash poor and low-income borrowers with poor or no credit, who were not financially literate and were in need of emergency cash.
Payday loans required borrowers to write a post-dated check for the full balance, including all fees, or provide such authorization to debit funds to the lender electronically from the borrower’s bank or credit union. If loans were not paid back when due the lender could cash the check or make an electronic withdrawal.
Despite the many negative consequences of payday loans, there were a number of reasons that they proliferated. The first being was the exceptionally easy access to cash. Unlike traditional loans or even other short-term personal loans which can take hours to process, payday loan applications could be processed in minutes. They could also be processed with very few requirements beyond legal age (18 years), having a Social Security number, a regular job and a bank account. Above all, there were no credit checks made which allowed for borrowers with poor or no credit to get a loan.
Even though payday loans were easily accessed, for borrowers, there was no positive credit reported when the loan was repaid. Payday loans would not help build any borrowers credit—credit that could aid in improving their credit score to make them eligible for future higher quality financial products. Lenders with access to a borrower’s bank account as a condition of the loan could pose a different type of risk if a loan was not paid back. They could also take such measures as sending the debt to collections or go to court over outstanding balances.
Alternatives to Payday Loans
There are much better alternatives for people with poor or no credit history. The most common way to secure cash is through a personal loan, a type of installment loan where the borrower pays back the loan in installments each month or, depending on the terms, sometimes each week. Personal loans may be offered as secured or unsecured loans on a short-term basis. In many instances, the stipulation for either loan only requires that the borrower has the means to make payments per the loan terms.
Title loans are a type of secured, short-term personal loan for borrowers with poor or no credit. Borrowers offer lenders an asset as collateral. In this case, the title to a car, truck, motorcycle, or any other type of property the borrower has the title of, which can be held as collateral. Because there is collateral, the risk is considered lower, and secured personal loans are generally offered with more favorable terms and lower interest rates.
An unsecured personal loan does not require any collateral or to be backed by any type of security. Registration loans are a good example of the type of unsecured, short-term personal loan available to people with poor or no credit. It’s considered unsecured because a vehicle’s registration is used to get the loan, not the vehicle’s title, meaning outright ownership of the vehicle is not required. Because the lender assumes the greater risk, unsecured loans are usually granted with less favorable terms such as a higher interest rate.
Payday loans were made illegal in Arizona to stop or help prevent fraudulent, deceptive and unfair lending practices. Today in Arizona there are safer, short-term personal loans available to borrowers with poor or no credit. Tio Rico offers borrowers personal loans with the flexibility that will ensure it fits the customer’s budget. They are a licensed lender that offers quick and easy short-term loans. As with any loan, even in a cash-strapped emergency, always limit the amount of money borrowed to what is affordable. Look to Tio Rico as your trusted and reliable source for short-term cash loans if or whenever you are in a financial pinch.