Although popular with many, payday loans can be fraught with financial problems for consumers. Hidden fees, exorbitant charges, sky-high interest rates, and predatory lending practices are all possible traps of payday loans.
Online payday loans expand the reach of traditional payday loan offices by targeting and seeking potential consumers based on their personal information, algorithms, and online activities. Learn what to watch out for regarding these payday loan pitfalls.
What Problems Do People Face With Online Payday Loans?
To start, it’s worth mentioning that not all lending organizations are unscrupulous. However, many are scamming millions of dollars annually by abusing financially unstable customers who lack awareness.
Immoral Practices by Online Payday Lenders
Some will consider it a simple omission. Others intentionally mislead from the beginning. Whatever the methods, specific online lenders will make incredulous claims and promises, all to ensnare consumers in an inescapable financial loop.
For instance, some scams offer weekly or short-term interest rates, which don’t express the annual interest rates. Fees can be hidden, and customers will become locked into unreasonable rates. Other scams rely on confusion with money being sent and received in different accounts, designed to create overdraft charges through insufficient funds available.
Online payday lenders can also be quite ruthless when attempting to collect a past-due debt. They can say, threaten, or promise whatever they want. They realize most consumers don’t understand the industry or its rules.
Unfortunately, many consumers will make concessions or cave entirely to the more convincing charlatans. Some online lenders have even harassed consumers to pay for loans they’ve already paid off or never even had.
Whatever the scam, online payday lenders often bank on consumers, not knowing how to challenge the debt collectors. When people are already feeling financial stress, they’re far more likely to make an unwise decision simply because they think they have no other choices. The combination of emotion and inexperience makes for the perfect target.
Incredibly High APR in Online Payday Loans
One of the biggest pitfalls for consumers regarding payday loans is the fees and interest rates attached. APR, or annual percentage rate, refers to the interest rate and other fees attached to a loan, which is not the principal amount owed.
With online lenders, APR can be compounding. If a person misses a payment, for example, it may signal an increase in the APR. If this happens more often, the APR can reach triple digits! Consumers will never crawl out from under a mountain of debt if more fees and percentage points keep getting tacked on to the total.
The Problem of Fraudulency and Illegitimacy in Online Lenders
It’s worth mentioning that not all payday lenders are bad. Many large or established lending organizations have outstanding records, support their customers, and keep cracking down on fraudulent lenders in the industry.
They most likely realize what other industries have; one bad apple can spoil the whole bunch. When predatory and unscrupulous lenders can exist and grow, they create confusion and distrust in the entire industry.
Additionally, consumers who fall prey to these bad-faith companies face problems with their credit scores, mountains of insurmountable debt, and financial uncertainty. Undermining society’s confidence and economic foundations further creates divisions and distrust, as well as being less able to live and thrive reasonably.
Risks to Your Credit Score
As mentioned above, credit scores are often the other victims of loan scams. Each individual has a credit score attached to them. It denotes their buying power and commitment to paying their bills and is essential for receiving legitimate loans for cars, mortgages, or other more significant purchases.
Repairing credit scores is much more complex than wrecking them, too. Only a few wrong moves, financially, and an individual’s credit score can begin to tumble. Raising a credit score again usually means making purchases and paying off any credit or debt accrued.
Unfortunately, when a person is stuck with a bad payday loan, they cannot make the moves to repair their scores. Buying items and paying back loans or credit cards can be seriously curtailed when dealing with an overdue payday loan. Furthermore, the continued problems with payday loans will continue to drag the credit score down.
Do Online Lenders Also Steal Data?
In an increasingly tech-reliant world, more and more data can be compiled and used for and against us. Online payday lenders are tapping into personal consumer data to gain another lever for trapping, pressuring, or falsely charging consumers.
Once personal records are accessed, it’s also possible to see an increase in phishing for account information or passwords. Fraudulent organizations often have multiple divisions in which personal or valuable information is used or leveraged to extract more money or information.
These online frauds often impersonate legitimate financial institutions or official government organizations to fool consumers. Emails, texts, or phone calls may all be designed to gain trust and access to consumer information and continue the scam.
What Are the Legal Guidelines For Online Payday Loans in the U.S.?
Fortunately for some consumers, there are laws and regulations for how payday loan companies can operate. Unfortunately, these rules and regulations vary from state to state. Check your specific state here to see what protections exist. Or look here for a comprehensive list of what each state does and doesn’t allow.
It’s essential to remember that laws and legislation regarding payday loans and lenders are constantly updating. Some states may be changing laws but have not yet made them official.
States That Allow No Payday Loans
Currently, only a few states prohibit payday loans. These states include:
- Washington D.C. (District of Columbia)
- Georgia
- North Carolina
Several states have also enacted strict or restrictive laws designed to help protect consumers.
- Arizona
- Arkansas
- Connecticut
- Illinois
- Maryland
- Massachusetts
- Montana
- Nebraska
- New Hampshire
- New Mexico
- New York
- Pennsylvania
- South Dakota
- Vermont
- West Virginia
These states work hard to hold lenders accountable, keep interest rates low, and ensure consumers are not falling into loan traps.
States That Allow Limited Payday Loans
Some states allow payday loans, although with certain conditions. Consumers can expect some protection but should also stay diligent in researching any possible lending opportunities, especially if they sound too good.
- Maine
- Ohio
- Oklahoma
- Oregon
- Virginia
- Washington (state)
States That Allow High-Sum Payday Loans
Although many states have worked to create protections and safeguards for consumers, other states still need to enact such rules. Buyers beware when pursuing payday loans in these states.
- Alabama
- Alaska
- California
- Delaware
- Florida
- Hawaii
- Idaho
- Indiana
- Iowa
- Kansas
- Kentucky
- Indiana
- Michigan
- Minnesota
- Mississippi
- Missouri
- Nevada
- North Dakota
- Rhode Island
- South Carolina
- Tennessee
- Texas
- Utah
- Wisconsin
- Wyoming
How to Avoid the Risks of Online Payday Loans
Even for consumers in states which allow high-sum payday loans, there are certain protections, safeguards, and rules which can assist in avoiding becoming trapped in a never-ending debt cycle.
Many online payday loan companies will play hardball initially, hoping to trap the consumer whenever possible. Avoid any offers which sound too good to be true. Avoid any offers which don’t produce enough information up front, either. If a lender avoids saying something, that should be a red flag.
Avoid offering too much personal information until you know the loan company is legitimate. More information can be given later, but offering up too much personal data can lead to more significant problems with data being sold, used against a consumer, or used to impersonate someone.
Ask for written or printed confirmation of any debt you’re said to owe. Any company should be able to produce detailed records to indicate what is owed, a payoff timeline, fees or charges, and current annual interest charges.
Loan collection calls and communications can only happen under certain times and conditions. If a loan collection call is harassing you or calling at odd hours, there may be some legal recourse. Read more about debt collection rules here.
Read all the paperwork thoroughly. If you don’t understand a section or clause, ask for clarification. If a loan company cannot answer questions, it’s likely time to look elsewhere.
Check the email addresses of the loan company. Legitimate companies won’t usually send information or statements from Yahoo, Gmail, or other typically consumer-based accounts.
Protection From Payday Scams
Keeping safe from online scammers or bad-faith financial opportunities comes down to having knowledge and experience with these financial pitfalls. Unfortunately, most consumers don’t have either and often play catch-up.
At Real PDL Help, we make it our business to know all the ins and outs of payday loans. Whether looking to finish up a payment cycle or looking for help with an oversized loan, we can help. Call or contact us today, and set your course for financial independence.
