Storefront lenders serve as a one-stop-shop for personal loan products such as cash advances, also known as payday loans. Besides payday loans and check cashing, many storefront lenders also offer financial services such as money transfers, bill payments, and even prepaid cell phones.

Each year, nearly 12 million Americans turn to storefront lending as a funding source when they run out of cash and have an emergency expense. Seventy percent of the time, these funds are used to cover necessities such as food, rent, or utilities.

Storefront lenders are a popular alternative to traditional funding avenues such as banks or credit unions for several reasons. For one, they are sometimes more accessible to consumers than traditional financiers, who often require lengthy paperwork, a waiting period of several weeks to months, and good credit. Storefront lenders do not always have these strict requirements, and they can have quicker response times in some cases. Obtaining a loan through a storefront lender may result in the consumer getting their money quicker. Lenders can sometimes have money deposited into the borrower’s account or loaded onto a prepaid debit card in as little as one to two business days.

Sometimes, loans through a storefront lender are more accessible to consumers with a damaged credit history because storefront lenders may consider factors other than credit history, such as whether the applicant has a steady source of income. Storefront lenders will consistently check every applicant’s credit history; however, they are more likely to be lenient in their approval. They may not have a strict credit threshold like banks and credit unions.

Storefront Loan Requirements

Going through a bank to obtain a loan can be a huge hassle, and many people favor storefront lenders for their convenience, speed, and ease of use. To qualify for a loan at a storefront lender, however, you will need to meet a few basic requirements.

The requirements to borrow from a storefront vary by location but may include the following:

• Valid government-issued photo I.D. proving borrower is 18 years of age or older
• Verifiable source of income or alternative income, such as benefits
• Valid email address and phone number
• Proof of residency
• Social Security number

In addition to these basic requirements, some lenders will have their own criteria. For example, some storefront lenders require customers to be at least 19 years old or have a bank account.

Storefront Lenders Laws and Regulations in the USA

Payday lending laws regulate storefront lenders in the USA. Each state has its laws regulating personal loans, but the amount of lending regulations varies widely from state to state. These laws commonly affect the terms of a personal loan, such as loan terms and the number of rollovers allowed. State regulations also directly affect a payday loan’s cost by regulating annual percentage rates (APRs) and the amount a lender may charge borrowers in fees such as finance charges. Some states also dictate whether lenders may pursue legal action against borrowers who fail to repay their loans.

Due to the variation of storefront lending laws across the U.S., some states make it easier for borrowers to take out loans than others. Ohio is the most expensive state for borrowers to take out a payday loan, with APR reaching as high as 667%.

 Other states with more relaxed payday loan laws include:

• Tennessee
• Virginia
• Utah
• Texas
• Nevada
• Idaho

Some states and the District of Columbia have banned payday loans altogether. These states include:

• Arizona
• Arkansas
• Georgia
• New Mexico
• North Carolina

To find out whether payday lending is legal in your state and learn more about payday loan regulations, visit the National Conference of State Legislature’s website.

Storefront Lenders: Is It Safe?

In exchange for the convenience, ease of use, and wide availability of payday loans, storefront lenders may charge higher rates for these short-term loans. Storefront lenders may offer advantages, but any financial benefits are meant to address short-term debt. In the long run, continually relying on payday loans to cover basic needs can lead to greater financial stress. Borrowers who abuse payday loans may eventually find themselves in an inescapable cycle of debt.

Some storefront lender revenue is generated by interest and fees on default and renewed, or rollover, loans. All borrowers should be confident they can repay a payday loan. Defaulting on your loan can generate more fees and interest to pay off. It is unwise to become dependent on short-term lending.

Avoid predatory practices. Some lenders act in bad faith, convincing borrowers to max out their loan, taking out more money than they can ever hope to repay on time. As of June 2020, some states do not require lenders to check whether a borrower can repay a loan, meaning that the responsibility to determine whether a loan is a sound financial decision is placed solely on the borrower. For this reason, consumers must think carefully about their financial situation before agreeing to a loan they cannot afford. In some cases, it’s better to look for other alternatives for funding before resorting to a payday loan.

In the best-case scenario, borrowers receive emergency cash and pay it back on time. In a worst-case scenario, borrowers become ensnared in a debt trap as they take out loan after loan to catch up with the previous one, but never do. Taking out loans you cannot repay can leave borrowers in a worse position than they were before the loan. Some states allow lenders to take borrowers who continually default to court, resulting in pricey court fees and even possible jail time.

Alternatives to Payday Loans

There are several options available to consumers who are short on cash but don’t want to go to a storefront lender. 

The best way to avoid a payday loan is to put yourself in a position where you don’t need it in the first place. That means raising your credit score, building your savings, following a carefully budgeted financial plan, and cutting expenses wherever possible.

If you’re in a financial bind that may require you to take out a loan, first try to cut your expenses. It may mean living a slightly less comfortable lifestyle, but it’s much more sustainable than spending money you don’t have. Some people find that storing away their credit cards helps reduce spending. You might also decide to do away with them entirely and only pay in cash.

If you’ve reduced your spending as much as possible and still find that you are barely scraping by, another option is to ask your employer for an advance on your paycheck. Some apps allow you to connect your employment and bank account information to receive an advance on your paycheck with little to no interest fees. This works similarly to a payday loan except without the fees. Instead of borrowing from a lender, you are borrowing money that is yours.

You may also opt to borrow from friends or family. Of course, this isn’t an option for everyone, but if it is, it’s something to consider.

What to Pay Attention to When Taking a Loan from Storefront Lenders

If you need to take out a payday loan, you can take measures to avoid getting taken advantage of.

Do your research. First, it’s essential that you research payday loans to know your state’s regulations, learn how to repay a payday loan, and map out the best lenders in your area. It’s helpful to look at storefront lenders reviews in your area when deciding which company to work with. Confirm that the lender you’ve applied for a loan with is properly licensed to operate in the state. Most states have online databases with this information.

Closely read the terms and conditions. It’s common practice now for people to skim terms and conditions or skip them entirely, but when it comes to a financially binding contract, you’ll want to be sure to understand precisely what you agree to. Pay attention to the length of your loan term and whether rollovers are allowed.

Pay attention to APR. APR is the interest that will accrue on your loan. Be sure you know what that interest rate is and consider how long that interest will be accruing as per your loan term.

Look for hidden fees. The law states that lenders must be upfront about any fees they charge. Examples of fees lenders commonly charge include origination fees, finance charges, re-financing charges, etc.

Ask questions. Above all, ask your lender questions if you’re unsure about any part of the agreement. You’ll be doing yourself a favor to understand what the long-term consequences of a loan will be.