Payday and Title Loans

Payday and Title Loans
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Last updated: May 2014

Payday Loans

Payday loans are short-term loans that range from 13 days to 120 days. Loans that are longer than 120 days are not payday loans. Payday loans have very high interest rates, averaging about 300 percent! That’s 15 times higher than the interest rates credit card companies charge.  

Payday loan companies target desperate individuals, especially the working poor and elderly on social security. They look for people whose need money so badly that it is hard to say “no” to unfair loan terms.

You should avoid taking out a payday loan if possible. If you need a loan try a credit union, or see if a friend or relative can help.

How does a payday loan company make sure they get paid?

There are 3 things a payday loan company may do to make sure you repay the loan: 

  • Make you give them a post-dated check on the day the loan is signed;
  • Ask you to sign an authorization that allows the loan company to take money from your checking account; or
  • Make you sign a "wage assignment." A wage assignment allows the loan company to take 15% of your wages out of your paycheck.

Can my payday loan be extended when it becomes due?

Payday loans used to be extended when they came due. This is called a “rollover.” Illinois law does not allow a loan company to renew or rollover your loan. But, loan companies can make a new loan to you if the new loan will not result in you being in debt to them for more than 45 days. 

Example:  Joe Smith takes out a 13-day payday loan from Company Z. He gets a second loan from Company Z on the 13th day, and a third loan from Company Z on the 26th day. Company Z cannot give Joe a fourth loan on the 39th day because that would mean he would have a payday loan for more than 45 days. Illinois law now says that Joe would have to wait at least 7 days after he pays off the old loan before he can get another payday loan.

What is the most I can borrow?

Generally, a payday loan cannot be higher than 25% of your gross monthly income or $1000, whichever is less. So if you earn $2000 monthly, the most you could borrow from a payday lender is $500 (25% of gross monthly earnings).

What if I take out more than one payday loan?

You can have two payday loans, but the payday loan cannot give you a third loan.

A loan company cannot knowingly accept the money from another payday loan to pay off a payday loan.

Can the payday loan company charge me fees?

There are only two fees the payday loan company may charge you.  They may charge a $25 fee if a check or electronic debit does not clear (bad check fee). They may also charge a fee of no more than $1 to verify that the payday loan is legal.

Can I go to jail if I don't pay the loan?

No. A payday lender may not file a criminal complaint for a “bad check” against a borrower to attempt to collect the payday loan.

What if I don't pay the loan on time?

All payday loans now come with a repayment plan. This allows you to stop the interest from building up on the debt after 35 days. If you have not paid off a payday loan after 35 days, you can ask the payday lender for a repayment plan. The repayment plan gives you 55 days to repay the loan in installments with no extra charges. If you and the payday lender agree, the repayment plan can be extended to 90 days.

Can I cancel a payday loan after I take it out?

Yes. You can cancel the loan and pay no interest charges by paying it off in full no later than the end of the second business day after the day you signed the loan.

Do I get any special protection if I'm in the military?

Yes. A payday loan company cannot garnish your wages to collect on a loan if your are a member of the military.

Title Loans

Another form of short-term lending is car title lending. Title loan companies target people who own their cars outright. The title loan company lends you money at huge interest rates (usually 200-300%) and gets the title to your car as "collateral." This means that if you don't pay off the loan they can take your car (repossess it) as payment.

You should avoid taking out a title loan if possible. If you need a loan try a credit union, or see if a friend or relative can help.

What is a balloon payment?

Most title loan companies use "balloon payments." A balloon payment is a very high payment that is due on the last month of the loan. 

For example, a $3000 auto title loan would require you to pay $400 each month for 7 months. Then you would have a $3000 balloon payment in the eighth month. If you can't pay the last payment (the balloon payment) the title loan company can repossess your car and sell it.

Can I lose my car?

Yes, many title loans end up with the consumer losing their car! You should never agree to borrow money from a title lender unless you have a plan to make all the payments of the loan, including the balloon payment in the last month.

 

What Can I Do if I Took Out a Payday or Title Loan? 

Ask For a “Repayment Plan”

A repayment plan allows you to stop the interest from building up on the debt after 35 days.  If you have not paid off a payday loan after 35 days, you can ask the payday lender for a repayment plan.

The repayment plan will give you at least 55 days to repay the loan in installments with no more charges of any kind. If you and the payday lender agree, the repayment plan can be extended even longer, to 90 days.

Talk To a Lawyer

If you have borrowed money from a payday loan company or a title loan store, talk to a lawyer to see if they can get you off the hook. Sometimes short-term lenders do not follow all the laws. 

Are you getting threatening phone calls?

Sometimes a payday loan store will call you when you have missed a payment and threaten you. They may try to scare you into paying them some money. But you cannot go to jail for failing to pay a payday loan in Illinois.

The only thing the payday loan store can do is sue you in the local civil court. If they win, the worst thing that can happen is that they can garnish up to 15% of your wages to pay off the loan. If you are retired or unemployed there will be no wages for the payday loan store to garnish. But, with the help of a lawyer you may win the lawsuit. Remember, even if they win a lawsuit against you, a payday loan store cannot touch your monthly social security or pension check. 

Did you sign a wage assignment?

If you signed a wage assignment when you took out the payday loan, you can revoke (cancel) it very easily. To cancel the wage assignment, just write a letter to the payday loan store and give a copy of it to your employer. 

Click on the link below to go to the interview, which will automatically prepare the letter for you. Please answer the interview questions accurately and carefully to make sure that your letter will be correct. You may then print the letter and send a copy to the assignee and your employer. 

Letter to Revoke a Wage Assignment

Did you agree to let the payday loan store electronically transfer funds?

If you signed an agreement allowing the payday loan company to take its payments directly out of your bank or checking account, you should call your bank and tell them you want to cancel that agreement.

Did you give the payday loan store a post-dated check?

If you gave a post-dated check to the payday loan company, they will probably try to cash it. If the check bounces your bank will charge you a fee—maybe as high as $30. The payday loan company may threaten to file a criminal complaint against you for giving them a "bad check" but a new law says they cannot do this. 

You can call your bank and tell them not to pay on the check. There will be a fee for this.

Don't Sign a New Payday Loan to Pay Off the Old Payday Loan!

Signing a new loan extends the loan over time and allows the interest to grow. Sometimes it is better just to tell the payday loan company that you are unable to make any more payments. Or that you would like to enter into a "repayment plan". Sometimes there may be nothing the payday loan store can do to collect its money from you.

Have you thought about filing for bankruptcy?

If you have lots of debt in addition to the payday loan, bankruptcy proceedings might offer you a fresh start. 

Did you take out a title loan?

If you fall behind on a title loan, expect your car to be repossessed and sold. Repayment plans do not apply to title loans. Before your car is repossessed, the title loan company is supposed to send you notice and sell the car in a reasonable manner. 

Would you like to file a complaint?

Complaints against a payday loan outfit or a title loan lender can be directed to the Illinois Department of Financial Institutions. 

Phone number: (312) 814-2000, T.D.D. (312) 814-7138

 

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