The payday loans can be tempting. Ads that promise money to “be struck until next payday” appear in places where checks are changed at pawnshops in the classified and are increasing over the Internet. Cyberspace is the new frontier of marketing for payday loans with lenders based on your check and promoting their services through pop-up ads (pop-ups), unwanted emails and websites . Since these services “cash until payday” appear to be of great benefit, consumers should know the risks. The cash-strapped consumers can become mired in an endless cycle of repetitive loans to extremely high costs.
Smaller loans, short-term, high interest are managed under a variety of names: payday loans, cash in advance (cash advance loans) on checks in advance (check advance loans) , pre dated check (post-dated check loans) or deferred deposit check (deferred deposit check loans). To obtain these loans from commercial lenders, a consumer writes a check payable to the lender for the amount that you want the first pay plus a fee. The lender gives the borrower the amount of the check minus a fee, then he gets the check until your next payday, when the borrower can do one of three things: allow the check charge, paying picked effective loan or lengthen the fee, paying the fee and extending the loan for two or more weeks.
If the borrower decides to apply for a loan with an online lender, the loan is applied through the network and the funds are delivered and collected through an electronic transfer of funds between the lender and the borrower’s bank account. The loan is based on electronic access to the borrower’s bank account.
Because borrowers should have a bank account and a well-established source of income or benefits in order to qualify for these loans, lenders usually do not perform conventional credit checks. Some borrowers have complained to the Better Business Bureau that lenders have been asked to issue checks for deposit and then use them to force them to extend the loan. Refinancing loans percentages and charging excessive fees called “loan flipping” is a practice that can trap vulnerable consumers who are heavily indebted.
Under the federal Truth in Lending (The Truth in Lending Act) must be known the cost of payday loans like other types of credit. A consumer must receive written, among other information, the financial cost (a dollar amount) and the annual percentage rate or APR (the cost of credit based on one year). Finance charges can range from $ 15 to $ 30 per $ 100 borrowed. This may not seem a lot of money until you see the APR of the loan. A credit industry survey revealed that the average APR for a payday loan was 300%. A recent report from the Missouri Department of Finance found that the average interest in the state was 408%!
The payday loans are made over the Internet can be especially problematic according to a study by the Consumer Federation of America released in November 2004. Consumers are encouraged to apply and receive loan funds that are deposited in their banks through a night service, filling applications through the network and / or sending the application and related documents by fax. Besides the high cost of credit that may be known openly, the study found that consumers who requested a payday loan online, faced the following challenges:
It may be difficult or impossible to locate or contact the lenders. Some hide under logs or anonymous sites on the Internet or can be located outside the United States. The borrower may have trouble communicating with the lenders of the network for any questions you may have or to resolve any issues that may arise.
It may be that being located in states with lax laws, Internet lenders ignore state usury laws and consumer protection.
By filling out loan applications online, the borrower may be exposed to privacy and security risks if the lender fails to comply with the strict privacy policies or the web site is not safe.
Better Business Bureau along with the Federal Trade Commission advises consumers to consider other options before deciding to apply for a payday loan:
If you need money, compare carefully. Consider a small loan from your credit union or company, a cash advance from your employer or a loan from a relative or friend.
Ask your creditors a bit of time to pay their bills. See if they will charge for that service as a late payment fee, a finance charge or a higher interest rate.
If you need help on a debt refinancing plan with creditors or to implement its budget contact service consumer credit counseling in your area. There are some nonprofit groups that offer credit counseling to consumers at little or no cost.
Finally, contact your local Better Business Bureau for information about any lender with whom you are considering doing some business