Are you looking for a convenient way to cover a bill or emergency expense in between paychecks? You’ve probably heard about payday loans but may not be sure how they work in New Mexico. In this complete guide, we’ll provide the information you need to use payday loans responsibly in New Mexico. If you still have questions, our knowledgeable employees are here to help! Call (877) 818-DNCU or schedule an appointment with one of our Northern New Mexico branch locations in Española, Los Alamos, White Rock, and Santa Fe.
What is a Payday Loan?
According to the Consumer Financial Protection Bureau, payday loans are usually for small amounts and have short terms, with a single repayment on the borrower’s next payday or when they receive another form of income, such as a pension or social security check. To guarantee repayment, you may be required to write a post-dated check for the full balance, including fees, or to authorize an electronic debit from your checking account on the due date. Payday loans can be obtained from online lenders, non-bank or credit union storefronts, and traditional financial institutions.
Other names for payday loans
Payday loans are often described as a way to “bridge the gap” between paychecks in the event that unexpected expenses arise. Learn to recognize the different names for the same type of short-term loan:
- Cash advance loans
- Deferred deposit loans
- Check advance loans
- Online payday loans
However, payday loans are defined a little differently under New Mexico state law.
In 2017, the New Mexico State legislature imposed new regulations on payday lending with the passage of HB 347 (PDF.) The rules apply to small loans of up to $5,000:
- Borrowers must pay off an existing small loan before taking out a new one.
- Small loans cannot have a maturity (term) of less than 120 days.
- Small loans must be repayable in a minimum of four substantially equal installment payments of principal and interest.
- Small loan APRs are capped at 175%.
Business and commercial loans are exempt from these rules. Refund anticipation loans are also an exception, and can be defined as any loan “that is secured by or that the creditor arranges or expects to be repaid, directly or indirectly, from the proceeds of the consumer’s federal or state personal income tax refunds or tax credits, including any sale, assignment or purchase of a tax refund or tax credit at a discount or for a fee.” Finally, federally insured depository institutions (banks and credit unions) are also exempt.
How Do Payday Loans Work?
Payday loans generally come with more flexible credit approval than other types of loans. In fact, instead of checking your credit score, payday lenders are usually more concerned with checking your employment or retirement income status and your ability to guarantee repayment through a post-dated check or electronic debit authorization. This is why payday lending is a popular alternative for people who lack access to other forms of credit, such as credit cards and lines of credit.
Once your payday loan application is approved, you can expect to receive the funds right away, either as a direct deposit into your checking account or through an alternative delivery method of your choice.
How to Qualify For a Payday Loan
Eligibility requirements for a payday loan vary by lender. At a minimum, you’ll generally need to be at least 18 years old, have a Social Security or Tax ID number, show proof of employment or retirement income, and have an active checking account.
At Del Norte Credit Union, we are dedicated to improving the lives of our members with competitive financial products and services. We created the Freedom Cash Loan to make it as simple and affordable as possible to “bridge the gap” between your pay or retirement checks.
Freedom Cash Loan Eligibility
- Must be a DNCU member for at least 120 days
- Individual applicants only
- Must be employed or receiving retirement income for at least 180 days
- Must be 18 or older
- Must have direct deposit from your employer or a source of retirement income of at least $100.
- May only have one Freedom Cash loan at a time.
What are Payday Loans Used For?
When it comes to the question of why people take out payday loans, some lawmakers and scholars argue that all payday lending is inherently bad and should be eliminated. However, in the book Hillbilly Elegy, J.D. Vance argues that “payday lenders could solve important financial problems” and describes his positive experience:
My credit was awful, thanks to a host of terrible financial decisions (some of which weren’t my fault, many of which were), so credit cards weren’t a possibility … One Friday morning I dropped off my rent check, knowing that if I waited another day, the fifty-dollar late fee would kick in. I didn’t have enough money to cover the check, but I’d get paid that day and would be able to deposit the money after work. However, after a long day at the senate, I forgot to grab my paycheck before I left. By the time I realized the mistake, I was already home, and the Statehouse staff had left for the weekend. On that day, a three-day payday loan, with a few dollars of interest, enabled me to avoid a significant overdraft fee.
As Vance makes clear, the transparent fees associated with payday loans are a big part of their appeal. If you already have no margin for error in your budget, the last thing you need is to incur an expected fee like an overdraft charge or late payment fee. When you take out a payday loan, you know the total amount you need to repay up front, so you can and plan and budget for it without unpleasant surprises. Additionally, the flexible credit requirements and fast processing time make payday loans a good option when you have a poor credit history and/or need cash right away.
Using Payday Loans Responsibly
While there are a variety of upsides to using payday loans, this is only true if you use them responsibly. At Del Norte Credit Union, we help you stay responsible with your payday loan by being transparent about the $20 application fee, the $15 late fee on loans that are 15 days or more past due, and your interest rate. We also limit you to one Freedom Cash loan at a time and no more than three over a rolling six month period. This helps you avoid getting in over your head with debt. Even if you get your payday loan from a different lender, follow these tips to use it responsibly:
- Make sure you are aware of the total cost of the loan upfront, which includes not only the amount borrowed (principal) but also the total interest you’ll pay and any fees.
- Hold on to any paper or digital documents regarding your loan.
- Don’t borrow more than you absolutely need to.
- Don’t “roll over” your payday loan.
- Pay it off in full by the due date.
- Try to avoid taking out a payday loan unless you know you can pay off the balance. Otherwise, you could get stuck in a cycle of taking out new loans to cover the prior one, paying interest every week or two without ever paying off the balance.
Apply for a Freedom Cash loan today!
Del Norte Credit Union (DNCU) is a member-owned, not-for-profit financial institution committed to reducing the borrowing costs associated with payday loans with the introduction of Freedom Cash. Our knowledgeable employees can help you find the right loan option to meet your financial needs. Learn more about the personal loan options we offer and apply online for a Freedom Cash Loan today! You can also call us at 877-818-DNCU to speak with a Service Advisor.