An installment loan can help spread a general expense across scheduled payments. In Pennsylvania, compare the lender's authority and charge method as well as the payment amount. A product name or online form does not establish which lending rules govern the actual offer.
Identify the Pennsylvania lender and its authority
In Pennsylvania, personal cash loans are made by banks, credit unions, and consumer discount companies. Consumer discount companies are nonbank lenders that are regulated differently than banks. Financing to purchase a car or other item may also be regulated differently.
In Pennsylvania, a consumer discount company must be authorized by the Department of Banking and Securities to make or negotiate certain covered loans of $25,000 or less if the total charges exceed those it could otherwise make legally. The authorization is required under the Consumer Discount Company Act, which contains exemptions and does not apply to all loans and lenders (for example, it does not apply to banks).
If a loan is covered by this Act and made by a Pennsylvania-licensed consumer discount company, the total amount the borrower owes the lender (known as aggregate obligation) may not be more than $25,000 (not counting certain lawful charges). Note that there are other exceptions in the law. This doesn't mean that a consumer discount company licensee can always lend you $25,000 or that $25,000 is the maximum amount of any Pennsylvania personal loan. The name of the online form or advertised product doesn't determine which set of lending rules applies.
You need to know the legal name of the company that is your creditor/lender and check that name. To search for a licensed consumer loan company in Pennsylvania, use the Pennsylvania Financial Institutions Search provided by the Department's Consumer Help Center. If you have questions about whether your lender/creditor is authorized in Pennsylvania, contact the Department for assistance.
Why a discount rate is different from APR
Under Pennsylvania's Consumer Discount Company Act, consumer discount companies may use different methods to figure the cost of your loan. Ask the lender to explain how your loan's cost will be figured. Ask for a written breakdown of all fees and charges you must pay. Don't assume that because one number or rate is low, all fees and charges will be, too. For covered consumer discount company loans, some of the methods and limits include the following:
| Method | Some statutory limits | Questions to ask your lender |
|---|---|---|
| Precomputed interest or discount | $9.50 a year for every $100 of your contract's face amount for the first 48 months of your loan, and $6 for each $100 per year for the rest of your loan if its term is longer. | Ask for:
|
| Alternative unpaid-principal method | Under this method, the monthly interest limit is 2% of the remaining principal. This figure must be figured based on the days that pass and can't be collected in advance or compounded. | Ask for:
|
These rates aren't the same as an annual percentage rate (APR). For example, the $9.50 a year isn't the same as a 9.5% APR. The calculation uses the contract's face amount rather than the balance left after each payment. Multiplying the monthly rate of 2% by 12 gives 24%. That figure is not a universal APR ceiling for closed-end loans.
Depending on the type of loan, all required finance charges and your payment schedule can affect your APR. Consumer discount companies can also charge a service fee of $1.50 for each $50 (or part of $50) of your loan contract amount, up to $150. Other charges may be allowed, too, depending on your transaction.
Compare cash received with the complete repayment schedule
Compare the total of your payments, your interest rate and APR, and all other fees and charges. You may find that a loan with smaller payments costs you more because its term is longer. Compare the total amount you'll get from your loan, called the proceeds, with the total amount you must repay.
Under Pennsylvania law, some charges may be figured and taken out before you get your loan. In that case, you might get less money than the amount you must repay. If part of your loan goes directly to pay another creditor, keep that in mind, too. Ask whether payments may be made weekly, twice a month, monthly, or another way.
Don't assume your payments will be the same each month. If you borrow using property as collateral, ask what will happen if you can't make your payments. If the offers you compare aren't alike, ask the lenders to change the amounts, terms, or costs so you can compare them.
Early payoff and changes to payment dates
Licensed Pennsylvania consumer discount companies must let you pay them back early in full or in part. If you pay off in full, your covered Pennsylvania loan figure, calculated using the precomputed method, requires that certain unearned finance charges, called interest or discount, be returned to you.
Service charges are not automatically refunded. If you pay off a loan with covered credit insurance early, the insurance must end and unearned premiums must be refunded under the applicable insurance rules. Ask for a payoff figure based on a certain date and how any refund or rebate was figured.
Don't assume that your payoff amount is the total of your remaining payments. Depending on how your loan's charges were figured and your payment history, the payoff figure could be more or less. If you ask to have payments deferred or your contract extended, ask what, if any, charges are allowed.
Get any changes in writing and keep your old loan contract so you can compare the payment dates and costs. Remember, too, that the lender's agreeing to change your payments may not erase any effects a late payment may have had.
What to check before submitting a request
A loan matching service may pass your information on to a loan provider. The actual lender will decide whether to make your loan and on what terms. Find out who will receive your information and what it may be used for.
Ask what kinds of identification, proof of income, or other account information the lender needs. Keep in mind that each lender decides for itself how to figure out whether to make your loan. Ask whether the lender plans to check your credit and, if so, whether that will be a "soft" or "hard" inquiry. A hard inquiry may affect your credit score.
Submitting an application or getting matched or given a price estimate doesn't mean your loan will be approved, will cost what was estimated, or will be available by a certain date. When you get your loan contract, check that it gives your lender's name and correct costs and terms, and review any payment authorizations before signing. Find out what will happen if you default.
After you get your loan, keep its contract and records of payments you make. If your income changes from month to month, check before accepting an offer that you can make your payments during months when you expect your income to be lower. Factor in your other regular costs, too.