If an unexpected emergency arises that has to be paid immediately and
you don’t have any savings or a credit card many consumers resort to using
payday loans. Payday loans can be obtained for $50 up to $1,000 or higher
depending upon specific requirements.
To receive a payday loan you are required
to write a post-dated check for the amount you wish to borrow plus any fees for
using the payday loan. The money minus
the fee is provided immediately into the consumer’s bank account the next day.
The next time the consumer gets paid the lender accesses their bank account to
process the post-dated check and withdraws the amount owed plus the fee.
Payday loans are attractive to consumers due to aggressive advertising,
lack of education and knowledge about the consequences of using payday loans.
Payday loans users think they are getting ahead but they are really getting
further behind. If you don’t have the money to pay your bills, you also don’t
have money to repay the payday loan.
Many consumers choose to use payday loans
because they have or
had access to credit but are unable to get approval for a loan or credit card
and have little to no savings. Payday loans do not require a credit check or
other forms of verification.
Payday loans are structured to keep consumers in debt because they have high fees, short term
due dates, balloon payments, and have access to a borrower’s checking account.
This results in consumers borrowing additional money to pay back payday loans.
Some
payday loan lenders offer no-cost loans to new borrowers although they know
that most borrowers will not be able to repay loan and will be charged a
default fee. Payday loans lenders operate as collection agencies and
must adhere to the Fair Debt Practices Collection Act (FDPCA) when collecting
on a debt, unfortunately most do not.
The consequences of payday loans
are:
- If you don’t have the money in your account on payday you will be charged overdraft or additional fees.
- Banks may cash checks prior to the post-date on a check.
- Payday loans have high interest rates with a common default rate of 6% if you fail to pay.
- Security and fraud risks may occur because payday loans companies are not licensed or regulated.
- Some payday loan lenders report to the credit bureaus.
- Your payday loan account may be sold to a collection agency.
- If you default on a payday loan you may be sued by the payday loan lender.
- Payment arrangements are available but are not offered to eligible consumers so payday loan lenders can make more money.
- The default payment plan for most payday lenders is setup for consumers to pay the finance charge only which does not reduce the loan principal.
- Once a payday loan company has a consumers’ bank account information they can access their account for repayment at any time without the consumers’ permission.
