New Colorado Law Limits Payday Loan Interest to 36%

Colorado law caps payday loan interest rates.

By an overwhelming margin, Colorado voters passed Proposition 111 during the 2018 midterm election. This ballot initiative put a 36% annual percentage rate (APR) cap on payday loans.

What Is a Payday Loan?

Payday loans are short-term loans that usually become due on your next payday or the next time you receive income from some other steady source, like Social Security. These loans come from a payday loan company or online vendor, and the amount you can borrower is normally relatively small—typically around $500 or less. Many states have laws that limit the amount you can borrow. (Learn more about how payday loans work.)

How Much Do Payday Loans Usually Cost?

Generally, the APR on payday loans ranges from 200% to 500%, which makes getting this kind of loan very expensive.

State Laws Often Regulate Payday Lenders

To reduce payday lending abuses, some state laws limit the amount a lender can charge for a payday loan. Other states have gone as far as making payday lending altogether illegal.

But, sometimes, payday lenders cross state lines or operate offshore to avoid having to follow state laws. (To learn more, read Beware of Pricey—Perhaps Illegal—Payday Loans.)

Payday Lending Rate Cap in Colorado

As of February 1, 2019, the interest rate for a payday loan in Colorado is capped at 36% a year. According to American Banker, proposition 111's passing makes Colorado the fifth state—after South Dakota, Ohio, Arizona, and Montana—to impose rate caps on payday loans through a voter referendum.

Go to the National Conference of State Legislator's website to learn about payday lending laws in all 50 states and the District of Columbia.

Effective date: February 1, 2019