How to Avoid Payday Loans in Houston

Inside Subprime: Jan 15, 2018

By Lindsay Frankel

Even as poverty rates drop nationwide, Houston residents continue to struggle to make ends meet. In fact, Houston’s poverty rate rose slightly to 14.8 percent in 2016. Low-income families seeking credit often turn to payday loans in Houston. These short-term, small-dollar loans don’t require a credit check and are fast and easy to obtain. But payday loans come with significant risks to borrowers’ financial well-being. Because the state of Texas does little to regulate predatory lending, payday lenders are charging 454 percent APR on average, according to Pew Charitable Trusts. Borrowers with bad credit should seek other alternatives before taking out a payday loan in Houston.

What laws protect borrowers from payday loans in Houston?

The state collects data and requires licensing and legal disclosures from payday lenders, but beyond that does nothing to limit predatory lending. Fortunately, a local law that took effect in Houston in 2014 requires lenders to verify a borrower’s ability to repay a loan in four installments or less. But the law doesn’t cap interest rates, nor does it stop borrowers from taking out multiple loans from different lenders. And while the number of payday lending storefronts has shrunk since the law took effect, total loan volume declined very little. Houston residents are still using payday loans, which often trap borrowers in insurmountable debt.

What other resources are available in Houston?

Though most people use payday loans to cover recurring living expenses, unexpected costs can make matters worse. To avoid using a payday loan in an emergency, seek help from nonprofit organizations or government assistance programs.

If you’re facing a healthcare emergency, consider visiting a local free or sliding scale health clinic in Houston. If you are uninsured, you should also check to see if you are eligible for Texas Medicaid. Even if you don’t qualify, your children may be eligible for CHIP.

Eligible low-income families can also receive assistance with paying rent and utility bills, or finding affordable housing. If you’re struggling to cover the cost of groceries, you can also apply for the state’s Supplemental Nutrition Assistance Program (SNAP). If you’re in need of food for your family right away, visit a local food pantry in Houston, such as the East Spring Branch Food Pantry.

What are some alternatives to payday loans in Houston?

If you are ineligible for assistance or you are still struggling to pay your bills even with help, you may need to borrow money until you can secure additional income. In this case, payday loans should be considered a last resort. Some local banks and credit unions may be able to help you with a lower-cost loan. The City of Houston’s Bank on Houston aims to help people access mainstream financial opportunities, and Promise Credit Union, sponsored by Baker Ripley, also offers options for borrowing.

If you have bad credit and can’t obtain a loan elsewhere, consider taking out an installment loan. These loans have lower interest rates and longer terms than payday loans, making them easier to pay off on time. And keeping up with your payments will also help you build credit. Once you’re back on your feet, consider applying for a credit card with your new and improved credit score, and set up a budget and savings plan so you’re prepared for future emergencies.

For more information on payday loans, scams, and cash advances and check out our city and state financial guides including Texas, Arlington, Austin, Dallas, El Paso, Fort Worth, Houston, Irving, Killeen, McAllen, PlanoRound Rock     San AntonioTyler, and Waco.