The Debt Trap - Don’t Get Caught!
What You Need to Know Before Borrowing Money

What are the risks?
New Mexico Law Now Protects You
Before You Sign
Help in Managing Your Money
Avoiding the Debt Trap
Choosing a credit counselor
Frequently Asked Questions about Payday Loans

What are Payday Loans?

Many check cashers, finance companies and other storefront businesses lend relatively small amounts of money to working people for a short period of time. These loans can go by different names – cash advance, check advance, post-dated check or deferred deposit check loans. But all are Payday Loans.

If you have a job, it’s easy to get one of these loans. No credit check is needed, and you don’t have to put up your car title or other collateral. All you generally need is some proof you have a steady job, a driver’s license and a checking account.

Usually, you’re asked to write a post-dated personal check payable to the lender for the amount you want to borrow, plus a fee. You either repay the loan before your next payday or the lender cashes your check.

What are the risks?

It’s easy, but it’s not cheap.

Calculated on an annual percentage basis (APR) as it would be if you were borrowing a larger sum for a longer term from a bank or credit union, a payday loan is a very expensive deal. If you’re already short of money, the additional expense of the payday loan puts you deeper in the hole with every passing week. Instead of solving your financial problems, the payday loan will only make them worse.

Payday loans get some borrowers into serious financial trouble. People can even end up in bankruptcy – all because of that original loan for just a few hundred dollars.

New Mexico Law Now Protects You

In 2007 the Legislature amended state law to help prevent payday loans from becoming big financial problems for consumers.

  • The term (length) of your payday loan can be no shorter than 14 days and no more than 35 days, unless you ask for a shorter period in writing.
  • You cannot renew, refinance or “roll over” your payday loan.
  • You cannot borrow more than 25% of your total gross monthly income.
  • The lender can charge you no more than $15.50 for each $100 you borrow, plus another 50 cents “verification fee.”
  • If the lender deposits your check on the agreed date and there is not enough money in your account, you can be charged an additional $15 for the returned check. (Your bank or credit union may also charge a steep fee for the insufficient funds check).
  • If you cannot repay your loan, you are entitled to enter into a no-cost payment plan of at least 130 days.
  • Once you are in a payment plan, and for a minimum of 10 days after you complete that plan, you cannot take out another payday loan.

Before You Sign

Consider Other Options

Ask your bank or credit union about a small installment loan. Talk to your boss – an employer may be willing to provide an advance on pay to a valued worker rather than see him or her slide into money trouble. If you’re having trouble paying the rent, making your mortgage payment, or paying other monthly bills, talk to your creditors about developing a payment plan you can meet.

Shop around

Payday loan fees and terms can vary from one lender to another (but can never be more than $15.50 per $100 borrowed, plus the 50-cent verification fee). Talk to several lenders and compare to find the best loan for you.

Check the lender’s license

Any individual or company in the business of making small loans in New Mexico must be licensed with the Regulation & Licensing Department Financial Institutions Division. You can call the division at (505) 476-4885 to confirm that your lender is properly licensed.

Make sure the papers are correct

Read your loan application and contract carefully and correct any errors. Never make an inaccurate statement about your financial condition. Walk away from any lender who offers to falsify information or asks you to sign a loan application where spaces have been left blank “to be filled in later.”

Understand what you sign

Be sure that the terms of the payday loan as written in your contract match what the lender has told you. Read your application and contract carefully and correct any errors.

Help in Managing Your Money

Payday loans are false financial ‘first aid’ in a crunch. If you have car or home repair bills, medical bills or other unexpected expenses that have to be paid, a loan from your bank or credit union, or even family and friends may be a better option.

If you need the money because you just can’t meet your normal monthly expenses, a payday loan will only make your problems worse.

In the long run, you really only have two choices: increase your income or reduce your expenses. Make a realistic budget, and figure your monthly and daily expenses. Unnecessary purchases - even small daily items – add up.

Just putting aside spare change at the end of every day can add up to a small emergency fund that will help you avoid borrowing in the future.

You may need help if:

  • You can't make the minimum monthly payment on your credit cards.
  • You're consistently late paying one or more of your regular bills.
  • You're being hounded by creditors and debt collection agencies.
  • You’re unable to save enough from your pay to put aside a small ‘emergency’ fund.

If you need help working out a debt repayment plan with creditors or developing a budget, there are non-profit groups in New Mexico that offer credit guidance to consumers. These services are available at little or no cost. Also, check with your employer, credit union or housing authority for no- or low-cost credit counseling programs.

Avoiding the Debt Trap

If you can’t seem to make your money last from one paycheck to the next, aren’t able to put aside any savings, and feel that you are falling behind financially, you should first try to put yourself and your family on a realistic budget. Sit down and list all your usual expenses, total them up and compare them to your regular income. A basic form to help you create a household budget is Control Your Household Budget.

In creating a budget, remember:

• Be realistic. Save all your receipts for a couple of weeks so you can see how much you’re really spending, not how much you think you’re spending. Those small purchases at the convenience store add up.

• Your goal is to save money. Review your expenses to see where you can trim a few dollars. Don’t expect you can cut your spending by half -- aim to save just 5 or 10 percent the first month.

• Stick to it. Continue to track your actual spending daily or weekly, at least for the first few weeks, and keep to your plan. Don’t be discouraged if you can’t make your initial goals; you may need to adjust the budget or try harder next week.

• Reward yourself. Cutting your spending requires self discipline, but you need to make room in your budget for an occasional movie, dinner out or other entertainment.

• Prepare for emergencies. In setting a budget, be sure you put aside something every paycheck for unexpected expenses like car or home repair bills.

More tips on managing your personal and family finances are available from the American Financial Services Association. A list of their free consumer publications is HERE.

Choosing a credit counselor

If your money problems seem more than you can cope with by yourself, you may want to consider working with a professional credit counselor. But just because an organization says it is “nonprofit” doesn’t guarantee that its services are free or even worthwhile. Unfortunately, some credit counselors charge high fees and fail to deliver the promised debt relief. Promises to "help you get out of debt easily" should warn you off. The Federal Trade Commission offers good advice on choosing a credit counselor HERE.

For a list of credit counselors approved by the federal government to provide pre-bankruptcy counseling, go to Approved Credit Counseling Agencies.

For more information on financial education programs and consumer resources offered by the federal government, go HERE.

Frequently Asked Questions about Payday Loans

What is a payday loan?
A payday loan is a short-term (a maximum of 35 days) personal loan secured by your personal check or your agreement to have the money owed taken out of your bank or credit union account at some future date.

What is the most I can borrow with a payday loan?
You can borrow no more than one-fourth (25%) of your gross monthly income.

What is the most I can be charged for a payday loan?
New Mexico law limits all charges and fees to no more than $15.50 for each $100 borrowed, plus a charge of 50 cents ($0.50) to pay for the cost of the verification database. For example, if you borrow $150, you can be charged no more than $23.75 ($15.50 for $100, plus $7.75 for the additional $50, plus $0.50 verification fees).

Can I renew or extend my payday loan?
No. New Mexico law prohibits “rolling over” a loan, or using a new loan to pay off an existing loan. You can take out a new loan after you pay off your previous loan. But if your previous loan has not solved your financial problem, another loan is not likely to help. You should seek HELP.

Can I have more than one payday loan outstanding at the same time?
It’s not against the law, but it’s not a good idea. Look for alternatives HERE. All your payday loans at any one time cannot total more than one-fourth (25%) of your gross monthly income.

What happens if I can’t repay my loan when due?
You will be offered an extended payment plan with a minimum of 130-days to repay the loan. During that time you will be expected to repay your loan in installments. You cannot be charged any additional fee for this extended payment plan, although you may be charged a fee if any of the checks you offer is returned for insufficient funds.

What happens if I can’t repay the loan in the payment plan?
You still owe the money, and the lender can take legal steps to collect your debt.

Can I take out another payday loan while I am completing a payment plan?
No. You cannot take out a payday loan while you are in a payment plan for a previous loan, or for 10 days after you complete all your outstanding payday loan obligations. If you are constantly short of cash to meet your monthly expenses, you need to look for HELP.

Can the lender deposit my check without my approval?
Not before the date on the check. If there is not enough money in your account to cover the check when it is deposited, the lender can add a $15 charge to what you owe. The lender cannot deposit your check a second time without your written permission.

What is the Loan Verification System?
When you apply for a loan, the lender must enter your name and identification information (your Social Security number and date of birth) into a centralized computer database to confirm that you are not already in a repayment plan or within 10 days of having completed a plan, and that your proposed loan (with any other payday loans you may have outstanding) does not total more than one-quarter of your gross income.