Payday loans that have transitioned to installment loans

Research has shown that payday loans are often harmful to borrowers. Many are unable to pay the large lump sum due at the end, which often leads to repeat borrowing and a lifestyle of debt. Because of the potential for harm to consumers, many states have passed legislation requiring payday lenders to allow borrowers to pay back in installments. The results have been favorable. Consequently, there is now a greater demand for lenders to offer installment loans over payday loans.

However, some former payday lenders haven’t exactly changed their ways, and are still figuring out how to get overly high yields. As of right now, there are four key areas that policymakers need to address as soon as possible to protect consumers.

Monthly payments are too high for some installment loans.

Financial experts agree that borrowers can only afford to put 5% of their paycheck towards monthly payments. Unfortunately, most payday installment lenders require more than this, and many borrowers need to frequently borrow money to avoid overdrafts or repossession of their vehicle. With payday lenders securing loans by gaining access to borrowers’ bank accounts, the situation has gotten well out of hand.

Fees are raising the total price of loans.

Application fees and other charges are causing loans to get more expensive. As of 2017, there is very limited legislation to restrict the amount of front-loaded fees a lender can charge. On top of this, many lending companies are strongly encouraging their buyers to refinance even when it’s not in their best interest to do so. Refinancing simply leads to more profits for the lenders because they then charge more fees.

Length of loan terms are often too long.

A longer loan term is usually a good thing because it can create more manageable monthly payments, but many lenders are taking it too far. In Arizona a $500 loan with an extended term ends up costing borrowers $1,626, whereas a $893 loan in Illinois costs $2,923 when all of the fees and monthly payments are incorporated.

Prices have stopped being competitive.

Many consumers these days are only concerned with how fast they can get a loan. They’re not shopping around for better prices. As a consequence, many companies are charging whatever they want because they’re still doing business. Some lenders are even charging as much as 450% APR!


There are solutions to all of these problems, but until policymakers start passing laws, you’ve got to do your research and only do business with loan companies that aren’t out to take every penny you have. Find the loan lenders we recommend in your state to see the ones that aren’t out to get you.

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Lauren Ward is a widely featured author with her work gaining a presence on top media outlets like CBS News. She has been in the content writing business for almost a decade. She writes attention-grabbing content focusing on subjects like personal finance and lending. Read more >

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