Payday Loan in Kansas: Are They Legal and How Do They Work?
When you have an unexpected expense or a temporary cash shortfall, a payday loan could help to fill the gap. Kansas payday lenders offer loans online or in person, often with no credit check. While a payday loan can help you access funds quickly, there are some significant risks to be aware of.
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Are payday loans legal in Kansas?
Payday loans are legal in Kansas and they're regulated under Statute 16a-2-404. Compared to other states, Kansas has some of the strictest restrictions on payday lending.
Here's what the law requires for Kansas payday loans:
APR: The maximum effective APR is 782%.
Fees: Finance charges cannot exceed 15% of the loan amount; lenders can charge one nonsufficient funds fee and a 3% charge per month.
Loan limits: The maximum loan limit is $500.
Loan terms: The minimum loan term is 7 days; the maximum is 30 days.
Renewal: Renewals and rollovers are not allowed.
Additional loans: Borrowers may have no more than two loans per lender at a time, and no more than three loans within a 30-day calendar period.
The maximum APR quoted above is based on a $100 loan with a seven-day term and a $15 finance charge. Choosing a shorter or longer term, or a different loan amount influences the rate you actually pay. For example, a $500 loan with a two-week term and the same $15 finance charge has an effective APR of 391%, according to the Federal Trade Commission (FTC).
How payday loans work in Kansas
Kansas payday lenders can offer loans online or in-person at physical locations. If you're applying for a payday loan online, here's how the process typically works.
Verify your identity with the lender, provide proof of income and share your bank account information.
The lender approves you for a loan, which is deposited into your bank account.
On your next payday or agreed-upon date, the lender collects what's owed on the loan through a direct withdrawal from your bank account.
Payday loans in Kansas offer fast funding, with some lenders offering cash the same day or the next business day. The most you can borrow in a single loan is $500, but state law allows you to have up to two loans per lender at a time. You can get a loan term as short as seven days or as long as 30 days.
Some states permit payday loan renewals or rollovers, which allow you to delay repayment for a fee. Kansas doesn't allow payday lenders to offer that option. That's actually a good thing, as rolling over payday loans can lead to an expensive cycle of debt.
The risks and dangers of payday loans
Payday loans are generally viewed as riskier than other types of loans for several reasons. The biggest dangers associated with payday loans include:
Debt trap: When you roll over a payday loan the lender charges a fee. You get some breathing room since you can put off repayment for a few more weeks, but you're not paying down any of the balance. If you repeatedly roll over a payday loan, you could pay more in renewal fees than you borrowed, plus you still have to repay the original loan amount.
Rates: As the examples above illustrate, Kansas payday loans (and payday loans in general) can have substantially higher effective APRs than credit cards or other loans. You get convenience with a payday loan but it often means paying a high cost.
Credit score damage: Payday loans typically don't require a credit check for approval and they won't show up on your credit report, unless you don't pay them. If you default on a payday loan, the lender could turn your account over to collections and report you to the credit bureaus. Defaults on your credit reports can hurt your credit scores and make it harder to get approved for other loans.
Bank fees: Payday lenders ask for your bank account information so they can deposit your loan funds, but they also need it to collect what's owed when your due date rolls around. If you don't have enough money in your account to cover the payday lender's withdrawal, along with any other transactions you've made, you could get hit with overdraft fees from the bank. If you frequently overdraft your account, the bank could close it altogether.
What happens if you don't repay a payday loan? The lender can start collection actions against you which could include a debt lawsuit. If you're sued for a payday loan debt and the lender wins, they can seek a court order to garnish your wages or bank account. That's usually a worst-case scenario, but it's a real risk to be aware of when considering a payday loan.
How to avoid the payday loan trap
Payday loans are just one way to get cash in a pinch, and the best way to avoid them is to not need them. How do you do that? Here are a few tips and strategies that can help.
Start a budget: A budget is a plan for how you spend money each month. You can budget on paper, in a spreadsheet or using an app. On one side, you add up all the money you bring in; on the other, all the money that goes out. Ideally, the difference between your income and expenses is a positive number. If it's negative, that means you spend more than you earn and you may need to try the next tip.
Cut expenses, if you can: Reducing expenses can add money back into your budget so you're less likely to need a payday loan in a minor emergency. If you've already cut out everything that isn't essential, you might look into ways to increase your income to close the gap between what you spend and what you make.
Save for emergencies: An emergency fund is money you set aside for unexpected needs. For example, a car repair or a doctor's visit you hadn't planned falls under the emergency expense category. If you're on a very tight budget you may need to start small with building a rainy day fund. For example, you may only be able to afford $10 every paycheck. That's okay; what matters is that you start saving and that you continue to do it consistently.
Of course, it's also important to check out payday loan alternatives. We'll share some options for you to consider a little later on.
When a payday loan might be the only option
A payday loan may truly be the only way to get cash you need in certain situations. For example, you might look to payday loans if you can't qualify for other loans because of your credit, or you don't have any friends or family members who could spot you some cash. You may also lean on a payday loan if you've tried side gigs but haven't been able to bring in any meaningful income from them yet.
If you're contemplating a Kansas payday loan, take your time and research different lenders. Compare the loan terms, rates and fees each one offers and check out online reviews to see what past customers have to say about them.
Keep these tips handy when you're ready to apply:
Borrow only what you need: You may qualify for a $500 payday loan but it doesn't make sense to borrow that much if you only need half that amount. Borrowing only what you need means you don't pay extra interest or fees unnecessarily.
Review the loan terms: Before you sign a loan agreement, read through it to make sure you understand when payment is due and what the loan will cost. If you see any details you don't understand, ask the lender to clarify them before you sign.
Keep an eye on your bank account: If you know when your loan payment is scheduled to be withdrawn, make sure you have enough in your account to cover it. That ensures that the lender doesn't come after you for an unpaid loan, and the bank doesn't charge you any overdraft fees.
Safer alternatives to payday loans
If you're looking for ways to borrow, other than payday loans, you've got options. You may be able to use credit cards, personal loans, an advance from your employer, or other avenues to get the money you need. Here's how payday loan alternatives compare.
Credit cards
Credit cards let you charge purchases and pay them off over time, with interest. The maximum APR on a credit card usually tops out somewhere between 30% and 36%, which is far less than the maximum 782% you could pay for a Kansas payday loan. Some credit cards even reward you with cash back, points or miles when you spend.
If you want to get a credit card as a safer alternative to payday loans, look for one that offers a 0% introductory APR. The low rate won't last forever; you may have anywhere from six to 24 months to enjoy it. But you can get a break on interest temporarily, which can save you money.
Earned wage access
Earned wage access products allow you to get a payday advance through your employer, rather than a payday lender. This type of on-demand pay lets you access some or all of your earned wages before payday, typically in exchange for a fee.
Accessing your earnings before payday can be helpful if you need money fast and the fees may be far less than what you'd pay for a payday loan. However, your future paychecks will be smaller while you repay the advance amount so you'll need to consider how that could affect your budget.
Personal loans (banks or credit unions)
A personal loan lets you borrow a lump sum of money for personal reasons. You can use the cash any way you like and you pay it back to the lender over time at a low, fixed interest rate.
Compared to payday loans, personal loans can help you unlock larger amounts of money at lower rates. You can pay a personal loan back over months or even years, instead of a few weeks. The only catch is that you'll need good to excellent credit to qualify for the lowest personal loan rates.
Payday alternative loans (PALs)
Payday alternative loans (PALs) let you borrow $200 to $1,000 through a credit union. You may have anywhere from 1 to 6 months to repay the loan, and the lender can charge a processing fee.
These loans can help you finance smaller expenses without putting your next paycheck on the line. You'll need to join a credit union to apply, but some credit unions extend membership to everyone, regardless of where you live, work, go to school or worship.
Credit-builder loans
Credit-builder loans are designed to help you build or rebuild your credit scores. Here's how this type of loan works:
If approved, the lender deposits the loan funds into a secure account that may or may not earn interest.
You make regular payments to the loan each month, which are reported to the credit bureaus.
At the end of the loan term, the loan funds are released to you, along with any interest earned.
A credit-builder loan may not solve a short-term cash flow need, but it can be used to help you establish a positive credit history. That could allow you to qualify for other loans later if another emergency comes along.
State-specific assistance programs
State assistance programs offer financial help to meet different types of needs. For example, Kansas residents can apply for cash assistance, food assistance, help with housing or childcare, assistance for utility and energy bills and healthcare assistance. Parents and legal guardians can also apply for the SUN Bucks program to cover meals for kids while school is out over the summer.
All of these programs can help with temporary needs, though you'll need to qualify for them to access benefits. Eligibility is based on your household size, income and assets for most programs. You can reach out to your county's department of children and family services offices to learn what options you might have, and how to apply.
Borrowing from family and friends
Friends and family members may be willing to give you a no-interest, no-fee loan. Whether this is an option for you depends on the relationships you have with those in your circle, and how comfortable you feel asking for a loan from people you know.
If you get a loan from friends or family, be clear about the terms up front and when you'll be able to pay them back. You may offer to sign a loan agreement or let them hold something of value that you own as collateral as proof of your intention and commitment to repay what you borrow.
Side hustles
Side hustles can help you get cash when you need it without a loan. Some side hustles, like driving for DoorDash or Walmart Spark, offer same-day or next-day pay. You can work a few hours and get cash in your bank account before the day ends.
When deciding what kind of side hustle to try, think about your skills, knowledge and how much time you have on your hands. Delivering food or shopping for groceries could help you rake in tips, for example, but you'll need to be able to dedicate a decent amount of time to it and have a reliable vehicle.
Conclusion
Payday loans can offer short-term relief but create long-term headaches if you get stuck in a cycle of debt. Before you apply for a payday loan, it's worth your time to look into alternatives to high-cost credit.
FAQs
What is the maximum loan amount I can borrow in Kansas?
The maximum payday loan allowed under Kansas state law is $500. You can have up to two loans at a time with the same lender.
What fees and interest rates can payday lenders charge in Kansas?
Kansas law permits payday lenders to assess a 15% finance charge. For a $100 loan, a $15 finance charge equates to an effective APR of 782%, assuming a seven-day loan term.
How long do payday loans last?
In Kansas, the minimum payday loan term is seven days. The maximum loan term is 30 days. Maximum loan terms may be shorter or longer in other states that allow payday lending.
Will a payday loan affect my credit score?
A payday loan typically won't affect your credit score unless you fail to repay it. If you default on a payday loan, the lender can send it to collections and report the account to the credit bureaus. Collection accounts can hurt your credit and make you appear riskier to other lenders.
Can I get a payday loan with bad credit?
It's possible to get a payday loan with bad credit or no credit at all. Many payday lenders offer loans with no credit check or only a soft credit pull required. The trade-off is that access to easy credit with a payday loan usually means paying much higher interest rates to borrow.
What should I do if I can’t repay my payday loan on time?
If you can't repay a payday loan on time, talk to your lender. You may be able to renew a payday loan or roll it over, if your state's payday lending laws allow that. Kansas law doesn't permit rollovers. If you can't renew the loan, you may need to ask friends and family for a loan or get an earned wage access advance to make sure you'll have enough money in your bank account to cover the loan payment when it's withdrawn.
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