Online Payday Loans: Expectation vs. Reality
Some choose payday loans when looking for a quick monetary fix. By offering fast money, few restrictions on applying, and a two-week repayment schedule, some consider these loans a reasonable answer to financial woes.
Unfortunately, payday loans are often filled with loopholes and financial traps designed to keep the consumer paying for their loan long after the two weeks. Now that companies are offering applications for online payday loans, even more of the general public may be influenced or tempted to receive a payday cash influx.
Are Payday Loans Really as Quick And Simple As Advertised?
Most of us have heard the adage, “If it sounds too good to be true, it probably is.” This phrase bears remembering when discussing payday loans.
Can a consumer receive a cash advance on their next paycheck with payday loans? Yes. Can this same consumer repay the loan without defaulting or rolling over into a higher interest rate and additional fees? Also yes.
In truth, more than a few individuals have used payday loans successfully without falling victim. Unfortunately, more have found issues with these quick cash moves than not.
Understanding the Real Costs Behind Online Payday Loans
The very design of a payday loan is to offer a small amount of money, usually not more than $500, with a quick repayment time frame and a borrowing fee. The fee is usually $15-$30 per $100 borrowed. The loan works as designed if repaid on time.
But, when these loans aren’t satisfied on time, they can cause a domino effect of financial problems for the consumer.
Are the Interest Rates Justifiable?
One of the biggest problems with payday loans is the interest rates or APRs. Not immediately visible, the interest can quickly become considerably more than the original loan amount if the loan defaults or rolls over to another two weeks.
Just looking at the example in the previous section, a $15 fee on $100 is equivalent to nearly 400% APR. While $15 doesn’t seem like that much of a fee initially, the compounding interest and fees become unmanageable for many consumers.
These fees and interest rates can also vary significantly from state to state. Some states have instilled consumer protection to ensure they aren’t unnecessarily thrown into financial chaos. Other states, however, still allow payday loan companies to charge exorbitant interest rates, often upwards of 600%.
Payday loans prey on the financially unstable.
One critical variable to include when talking about payday loans is the consumer’s financial status. Most individuals with good credit and money in the bank won’t need to consider online payday lenders as an option. Reputable lenders are more likely to work with financially stable consumers.
The typical payday loan recipient is usually already struggling or carefully managing their income and savings. Often, they are looking at a financial hurdle too big to clear on their own. Sometimes it’s a known occurrence, something planned, or a necessity that has been needed for some time.
Other times, it can be a surprise. An unforeseen bill, a medical emergency, or a repair needed for a vehicle or home. Whatever the occurrence, big or small, it has derailed the plans for an already tedious financial situation. Fear and anxiety will push consumers to make bad decisions, especially when they feel they have no other options.
Once an already cash-strapped individual or family gets behind on a payday loan, they are more likely to find themselves in a far worse financial state than when they started. Once there, it takes careful planning and often some additional help to manage and tackle the overdue payday loan.
Is Your Lender Legit?
Choosing a payday lender to receive a small loan is already risky. The risks are growing even more prominent with the rise of online payday loan companies.
As explained in a recent report by the Pew Charitable Trust, online payday lenders have become even more ruthless, unscrupulous, and aggressive in their attempts to wrangle consumers into bad-faith loans. Of course, there are some reputable online lenders, too, but the bad ones seem to always overshadow any positives for the industry.
According to the Better Business Bureau, 9 out of 10 complaints about payday lenders refer to online lending companies. Operating online gives fraudsters a sense of anonymity or invisibility, which emboldens them to become more predatory in their practices.
Determining if a lender is a legitimate business can take a little digging and research, but it is an essential part of protecting self-interests as a consumer. The federal government is offering tools to help check up on particular lenders. Check licenses, business records, and any logged complaints through the consumer financial services database.
Online Payday Lenders May Misuse Your Information
Personal and bank/financial information is usually needed when signing up for a payday loan. Payday loan companies often ask for access to checking accounts to transfer funds and receive automatic payments from a consumer’s account.
Unfortunately, with the rise of internet lenders, the personal information consumers submit can be leveraged against them if payment deadlines aren’t met. To threaten consumers, their next of kin may be contacted, or messages and calls may go to a place of business or employment.
Although many of these activities are illegal, tracking down who is applying the threatening pressure can be challenging. Many online lenders will hide their tracks by using alternative company names or information when attempting to collect a debt.
Online Payday Lenders Might Misuse Any Access to Your Bank Account
Once a payday lender, online or otherwise, has access to bank account numbers, they can continually charge late fees and automatic drafting of payoff amounts, even if the money doesn’t exist in the bank account.
The lending company uses this as another threatening tactic, and it works to put the consumer in a downward financial spiral they may never recover from. Continual overdrafts can eventually cause an account to be frozen, with no access available before resolving the missing money issues.
Sometimes, even a closed account isn’t sufficient to halt creditors from attempting to collect or lay claim to consumer assets. If a lender has sold consumer information to other online scammers, there may be attempts from outside sources to assemble from accounts not associated with the original loan.
Checking the Validity of Online Payday Lenders
Making sure a lender is pursuing good business practices should be one of the first moves when considering applying for a loan. Most states will offer databases or lists of reputable lenders and recommendations for reporting unscrupulous practices.
In Washington state, for instance, residents can use a licensee database to look up lenders throughout the state and check their status as reputable lenders. Nationally, there are a few sources to check out online and storefront payday lenders.
Find more information about payday loans, rules and regulations, and consumer safeguards through the Consumer Finance Protection Bureau.
How to Avoid the Dangers of Unpaid Payday Loans
Choosing a payday loan should be approached with plenty of caution and information. Start by researching the lender to determine their professional reputation and if any formal complaints have been lodged.
Next, check with the state where the loan is being applied, particularly the rules and regulations for loan companies and consumers. It can also be beneficial to remain informed of any current legislation about payday lenders. Check the NCLS website for more specific state information.
Read the terms of the loan carefully. Ask a professional if you aren’t clear about what the contractual language says. Consult someone familiar with payday loans or seek legal help, if possible.
Many companies, such as Real PDL Help, are well-versed in handling overdue payday loans and can offer meaningful advice.
Consider Payday Debt Consolidation
When payday debt becomes more than a consumer can handle alone, they should consider payday loan consolidation. Loan consolidations roll all existing debt into one lump sum and then structure reasonable payments to help the consumer repay their debt.
By offering consumers a method for clearing an unpaid debt and creditors the ability to receive the money owed to them, everyone is satisfied. Removing sky-high interest rates allows the consumer to pay toward the principal amount. They offered a reasonable repayment timeframe, benefiting the consumer and, ultimately, the creditor(s).
Leverage and Leeway
Knowing that many online payday lenders are counting on the fact that consumers will default on their loans should be enough information to steer clear of the risk. Still, many consumers feel they have no other choices and use payday loans as a last resort.
Falling victim to outrageous payday loan requirements can make many individuals feel like they’ve lost control. With loan consolidation, consumers can once again guide their financial ship.
Contact Real PDL Help today and see how we can help you get out of underneath payday loan debt and back on track to financial freedom.