How Payday Loan Interest Rates Vary Between States

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Payday loan interest rates in the United States vary from state to state. Whilst payday loans are strictly governed, or even outlawed entirely, in some states, in others, APR can sometimes be over 600%.

Ubiquity of Payday Loans

Payday loans, thanks to how easy they are to obtain, are becoming increasingly common. The volume of people depending on these types of loans is thought to have tripled since the coronavirus pandemic according to research from Gusto. Only 2% of these workers had used a payday loan before the pandemic.

According to the Consumer Financial Protection Bureau, 1 in 4 payday loans are re-borrowed nine times, if not more. It takes borrowers an average of 5 months to pay off their loans and they pay $520 in finance charges, on average. Thus, it is easy to see how these borrowers can easily enter a spiral of debt.

It is clear that these loans can cause a huge negative impact on borrowers. Charla Rios, a researcher with CRL, says that “in addition to the repeat borrowing…there’s an increase in the chances of overdrafts, losing a bank account, bankruptcy and difficulty paying bills.”

She continues: “People are financially strained right now and we also know the outcome and the harms of payday loans, so these loans are not a solution for the time that we’re in”.

Clamping Down on Payday Loan Interest Rates

Over the last year, many states have started to clamp down on what has become known as “predatory lending” by introducing specific laws relating to payday loans. 

Payday loan lenders have a reputation for taking advantage of people down on their luck financially by charging sky-high interest rates which are impossible to repay.

Payday loans are still widely available across the United States with over half of US states offering restriction-free loans. For many bad credit lender, all that is required is a valid form of ID, an existing bank account and proof of income.


In an effort to strive for more responsible lending practices, the Center for Responsible Lending analysed the average APR across different states based on a 14-day loan of $300. They revealed that due to the “finance charges” incurred for each loan, many consumers are oblivious to how much interest they are really paying.

Risk of Predatory Lending 

Statistics from CRL suggest that there are around 200 million Americans currently living in states where payday lending is not heavily regulated. This means that an increasingly high volume of Americans are at risk of predatory lending, sometimes with triple-digit interest rates.

Texas payday loans have the highest rates of any state, with a typical APR of 664%. As a reference, this figure is 40 times more than the average credit card interest rate (16.12%). Formerly, the highest payday loan rates were in Ohio, with an average of 677%; although, this has since been brought down substantially to 138%.

Capped Interest Rates

Certain states have already been regulating payday loan interest rates for some time. These are Arkansas, Arizona, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Dakota, Vermont, West Virginia and the District of Columbia. In these states, payday loan interest rates are capped at 36% or lower.

More recently, Nebraska’s November general election saw its voters overwhelmingly opt to cap payday loan interest rates at 36%. This was a huge drop from the previous average APR in Nebraska which was a staggering 404%.

January 2021 saw Illinois follow suit, passing a bill to cap rates on consumer loans, including both payday and car title, at 36%. Although the bill is still pending a signature from the Governor, it will make Illinois the latest state to clamp down on payday loan interest rates.

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