Military payday loans can be a tempting solution for short-term financial needs, but it's essential to understand the risks and consequences involved.
Many military personnel rely on payday loans to cover emergency expenses, but this can lead to a cycle of debt that's difficult to escape.
In the military, payday loans can be particularly problematic due to the high interest rates and fees associated with them.
The average annual percentage rate (APR) for a payday loan can range from 390% to 780%, making it challenging for borrowers to pay back the loan on time.
What You Need to Know
Under the Military Lending Act, payday loans, overdraft lines of credit, and most installment loans are covered. This includes deposit advance products and vehicle title loans.
The MLA applies to active-duty servicemembers and their dependents, including those on active Guard or active Reserve duty. Credit card companies didn't have to comply until October 3, 2017.
Some loans are exempt from the MLA, such as residential mortgages, mortgage refinances, and home equity loans or lines of credit. These loans are secured by the property being purchased, like a home or a motor vehicle.
You have certain rights under the MLA, including a 36% interest cap. This means you can't be charged more than a 36% Military Annual Percentage Rate (MAPR).
What is Covered Under the MLA?
The Military Lending Act (MLA) covers a range of consumer loans, including payday loans, overdraft lines of credit, and most installment loans.
As of October 3, 2016, most types of consumer loans offered to active-duty servicemembers and their dependents have to comply with the MLA.
This includes payday loans, deposit advance products, and vehicle title loans, as well as overdraft lines of credit, but not traditional overdraft services.
Installment loans are also covered, with some exceptions noted below.
Credit card companies didn't have to comply with the MLA until October 3, 2017.
Here are some examples of loans that are covered under the MLA:
- Payday loans, deposit advance products, and vehicle title loans;
- Overdraft lines of credit, but not traditional overdraft services;
- Installment loans, with the exceptions noted below.
However, there are some loans that the MLA doesn't cover, including:
- Residential mortgages (financing to buy or build a home that is secured by the home), mortgage refinances, home equity loans or lines of credit, or reverse mortgages;
- A loan to buy a motor vehicle when the credit is secured by the motor vehicle you are buying;
- A loan to buy personal property when the credit is secured by the property you’re buying, like jewelry or a home appliance.
Signs of Predatory Loans
Payday loans can be a trap, with interest rates as high as 400% APR or more.
Seventy-five percent of payday customers can't repay their loan within two weeks, leading to costly loan "rollovers".
A single balloon payment at the end of two weeks is all that's required, with no option for partial installment payments.
Payday lenders earn most of their profits by making multiple loans to the same customers, with 90% of their revenue growth coming from this practice.
They don't care if you can afford to repay the loan, encouraging you to borrow the maximum amount allowed.
Here are the warning signs of a predatory payday loan in a nutshell:
- Triple digit interest rate
- Short minimum loan term
- Single balloon payment
- Loan flipping (extensions, rollovers or back-to-back transactions)
- No consideration of borrower's ability to repay
Understanding the Costs
Military payday loans can be a costly option, with annual percentage rates (APRs) reaching as high as 390%. These high APRs can lead to a cycle of debt that's difficult to escape.
The average military payday loan has a term of two weeks, but the interest can add up quickly. In fact, a $1,000 loan with a 390% APR can cost up to $3,390 in interest.
Military personnel often rely on these loans due to financial difficulties, such as a low credit score or a sudden emergency expense.
The fees associated with military payday loans can also be substantial, with some lenders charging up to $30 in fees per $100 borrowed.
Frequently Asked Questions
Can you get a cash advance in the military?
Yes, military personnel can get a cash advance, but only if they haven't been called to active duty for more than 30 consecutive days. Eligibility for a cash advance is a standard requirement for military personnel.
Who qualifies for the military lending act?
Active duty military members, their spouses, and dependents are protected by the Military Lending Act. This includes those serving in the Army, Navy, Air Force, Marine Corps, Coast Guard, and National Guard.
Is the military lending act still in effect?
The Military Lending Act (MLA) is still in effect, but its provisions may not apply to all types of loans. Penalties can be imposed on creditors who violate MLA provisions, including exceeding the 36% interest cap.
Sources
- https://legacylis.virginia.gov/cgi-bin/legp604.exe
- https://www.military.com/money/va-loans/tempted-by-a-payday-loan-first-take-a-closer-look.html
- https://www.consumerfinance.gov/ask-cfpb/what-is-covered-under-the-military-lending-act-en-1785/
- https://www.militaryonesource.mil/transition-retirement/joining-national-guard-reserves/predatory-lending-warning-signs/
- https://www.consumerfinance.gov/consumer-tools/educator-tools/servicemembers/military-lending-act-mla/
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