Instant Payday Loans
Online payday lenders are proliferating at an alarming rate from the vantage point of cyberspace with promises of offering instant short-term loans to cash-strapped consumers. Anonymous, elusive and inconspicuous, internet lenders are enticing the desperate and the cash-starved with the lure of easy and instant money within minutes of filling out an online application. Speed is of the essence.
So, each compete with the other, feverishly, in the race against time to peddle loans to customers; thus the advertisings that pops all over the internet screaming, get instant payday online within 24 hours or get instant cash loan the same day from brick and mortar payday lenders. Seemingly benign such online solicitations pose a threat to buyers who succumb to their tall claims.
Payday loans and its online avatar:
To someone unaware of its workings a payday loan is for those who live from paycheck to paycheck with no cushion of savings to fall back upon in the event of an emergency arising in between paychecks to help offset the unexpected expense. Payday loans are short-term loans or cash-advances made in exchange of a post-dated check, which is two weeks from the date of cash advance or whenever the next paycheck is due (usually 30 days). The borrower tends a personal check for the amount borrowed and tucks a fee that in essence is the interest for payday loans. Mostly it ranges from 400% to 600%. Upon defaulting to repay the loan the lender rolls it over for a fee. In most cases the borrower defaults repeatedly and the loan extends over repeated cycles with fees accumulating until it snowballs into a massive debt.
The online payday loan is a variant of this basic premise of predatory lending except it passes in a flash between the parties, only more vicious and exploiting. The Consumer Federation of America (CFA), have fore
-warned consumers about use of internet payday lending sites where loans due by the next payday can cost up to $30 per $100 borrowed. This means an annual percentage rate of 650% which is way above the limit set by the State Usury Laws (25% in most states) and common payday loan interest rates.
Factors that make online payday loans a risk:
Lack of transparency:
Online payday businesses use anonymity as its trump card. Most online payday deals are marketed through e-mails, online search, paid-ads and referrals. In many cases the information disclosing the terms of the loan are not mentioned in full. Most payday lenders are accused of secrecy and more so when doing business over the internet. A survey revealed that only 38 sites divulged the annual interest rates for loans prior to customers completing the loan application process, while 57 sites merely quoted the finance charges. The most frequently posted APR was 652%, followed by 780%.
Disclose of personal information:
As a first step towards loan procurement the customer fills out an online application form and furnishes it with vital details as his Social Security Number, Drivers License number, postal address and employer information. He has also to provide bank details as checking account number and bank routing number. In some cases the borrower is even required to fax his recent pay-stub, bank statements and a voided check.
Releasing account information to an unknown identity is dangerous. The lender in this case may make unauthorized withdrawals, extract interest, fees and subject it to further misuses that are detrimental to the persons finances.
In a survey conducted by the Consumer Federation of America, it has been found that out of 100 online payday lenders and referral sites many are run from outside the United States which in effect makes them elusive to the American laws. This poses a further risk to consumers as any legal action against account manhandling or account abuse will be difficult.
The scare of unlicensed payday lenders:
The profusion of online payday lenders is posing a problem for the state law enforcement officials and consumer advocates. Shockingly, many of these payday loan offices are not licensed under State law to offer loans to its residents. Yet many are found charging an annual percentage rate that averaged at a whopping 300% and fees averaging at $30. The Massachusetts Office of Consumer Affairs and Business Regulations in a drive to curb illegal business practices sent out orders to 91 companies marketing internet payday loans, to halt their sleazy operations and what they found was astounding. Many of these companies were operating under fictitious addresses.
Again the indefinite geographical location of these online outfits has put the legal system in bewilderment. Investigators to this problem have opined that the task of pinpointing their location is arduous. When put under the legal scanner the online loan outfits were vociferous in defending themselves and claiming that their operations were as per their state laws. For law enforcers it is hard to challenge such claims as the legal statutes vary among states in United States.
This in great part reinforces concern about consumers giving away personal information to aliens. That's one of the reasons licensing is required; it gives the consumer some recourse.
High interest rates and extorton practices:
Online payday loans are typically higher than the one procured from your neighborhood lender. Typically a payday loan lender charges $15 to $20 for every $100 borrowed. Consumer Federation of America in one of its findings records online lending fees per $100 varying from $10 to $30 and the most frequent rate was $25 per $100 borrowed. This amounts to an APR of 650% for a two week term which is up from 400% in a typical payday loan.
Usually a payday loan is due on the next payday but some online lenders are known to voluntarily renew the loan for another pay cycle. In that case the lender withdraws the service charge for the renewal by dipping into his clients checking account thus plunging him further into debts without his knowledge. To add insult to injury, if insufficient funds in the checking account fail to cover finance charges or repayments, the account holder suffers penalizing by both the bank and the lender.
Based on CFA's findings sixty-five of the surveyed sites permit loan renewals with no reduction of principal. With some online lenders, consumers have to take additional steps to actually repay the loan. With others, the principal has to be tendered in portions with each renewal to the lender, after several renewals have already been made.
One sided terms:
Contracts from Internet payday lenders include a range of one-sided terms. They are mandatory arbitration clauses, agreements not to participate in class action lawsuits, and agreements not to file for bankruptcy. Some lenders require applicants to agree to keep their bank accounts open until loans are repaid. Others ask for "voluntary" wage assignments even in states where it is not legal.
Alternatives to payday loans:
The key to safeguarding oneself from such deceptive practices is to avoid this devious form of lending altogether.
Build up a nest-egg of savings by devising a careful spending plan.
Request an advance from your employer than dashing for a high interest loan as this.
Take up a part-time job if possible, to supplement income.
Set up a payment plan with your lenders.
Talk to relatives and friends for a loan.
Approach your credit union for an unsecured loan.
Draw cash advances on credit cards. Interest rates are high but still lower than a payday loan.
payday loans online or otherwise are financially draining. It is not a solution to short-term crisis but the starting point for long-term anguish. In times of identity theft when personal information needs to be closely guarded, applying for such loans online may result in final undoing. Besides payday loans are a debt-trap from which one may never come off. In this light exploring other options on the lines as mentioned above may succor one through hard times. Seeking help from a financial counselor can also bring assistance and relief to the cash-stricken.
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