Protect Yourself from Payday Loan Fraud
Times are tough, and during difficult times, fraudulent businesses come out of the woodwork, looking to take advantage of unsuspecting individuals who are struggling financially.
Among the many businesses that attract dishonest scam artists is the payday loan industry.
Many people are not sure how the payday loan industry really functions. For this reason, it can be easy for a person to fall victim to a payday loan scammer.
The best way to protect yourself from fraudulent payday loan scams is by understanding how payday loans are supposed to work and what signs can indicate a potential payday loan fraud.
Payday Loans: The Way They are Supposed to Work
Payday loans are short-term loans that are often much easier to obtain than other types of loans, such as personal unsecured loans.
Most of the time, a borrower's poor credit history will not impact his or her ability to be approved for a payday loan, and there is often very little paperwork required.
A borrower does need to meet certain qualifications, however, to be approved for a payday loan. Most payday lenders will require that the borrower receive a certain level of income, be at least 18 years old, be a U.S. citizen and have an active savings or checking account.
Payday loans provide a very short repayment period - typically 14 to 31 days, or by the borrower's next payday (hence, the name "payday" loans). Borrowers will need to provide their bank account information to the payday lender in order to obtain the loan. The loans then typically are provided to the borrower via actual cash, a prepaid debit card or deposited directly into the borrower's account.
Payday lenders will charge certain fees for payday loans. These fees often range from 10 percent to 25 percent of the total loan amount, with annual percentage rates, or APRs, that start around 400 percent.
If a borrower is unable to repay the payday loan by the original repayment deadline, the payday lender will charge an additional fee, which in turn increases the loan's APR. Additionally, if the payday lender utilizes direct deposit for its payday loans, the lender might withdraw funds from the borrower's account automatically when the loan is due.
These fees and the act of withdrawing funds from a borrower's account might feel as if they are signs of abuse, but these steps taken by payday lenders are legal and are taken only when borrowers do not repay their loans by the original due dates.
Recognizing the Signs of Payday Loan Fraud
When shopping for a payday lender, it is important to be on the lookout for the following signs of potential payday loan abuse:
- Guaranteed Approval: It is true that payday loans can be easier to obtain than other types of loans, but there are still qualifications that borrowers must meet.
- Up-Front Fees Required: Legitimate payday lenders do not charge upfront fees, such as an application fee, before the loan is even approved.
- Too-Good-To-Be-True Rates: Many payday lenders do offer special discounts for first-time customers, but if the lender's normal rates are significantly lower than most other payday lenders, the lender might be hiding something.
- Unclear Loan Terms: An honest payday lender will be completely upfront with its customers about its loan terms, which is required by the federal Truth in Lending Act.
- No Valid Contact Information: If the payday lender does not provide any valid contact information on its web site, you should steer clear of that company.