Borrowing money from lenders can be full of dangers. Nowadays many lenders use the Internet to trap victims. Payday loans and short term loans act as covered pits for use as a trap.
Regulators and consumer groups have warned about this trap and have made it known that such loans can trap people in vicious cycles of debt. Are payday loans destroying your life? Are you in much more debt than you can pay back right now?
If you have more than two payday loans then you may be eligible for a special payday loan consolidation program that your lenders don’t want you to know about. This program can get lenders out of your bank account and help you get out of this trap.
Borrowing money from online lenders can cause you twice as many overdrafts on your bank account than who borrow from a storefront lender. According to a recent study by the Pew Charitable Trusts, online loans typically cost an approximately 650% annual percentage rate (ApR).
Payday loans that are paid back on time range in cost from around 300% APR which is a rate similar to those charged for store-issued payday loans, and more than 700% APR from creditors who are not licensed in all of the states where they lend.
Online lending practices harm borrowers
There are numerous reports of abuse in the online payday loan market for the last few years.
Reports include threats and fraud by lenders, debt collectors, and those posing as lenders and debt collectors. Thirty percent of borrowers report being threatened in connection with an online payday loan, 22% of online borrowers have lost bank accounts because of online payday loans, and 89% of payday loan consumer complaints are about online lenders. This information is from Pew Charitable Trusts.
Why do people seek a payday loan knowing that it’s a trap?
Many people looking for a short-term loan knowing that it’s a trap. Since the financial crisis, banks have tightened their lending policy. For borrowers, they just need a thousand dollars to make ends meet, and they have nowhere else to go.
They have to borrow money from payday loans companies storefront and online. Check out the most common reasons why people seek payday loans.
Online payday lenders require having access to your bank account to let them directly withdraw from their accounts.
This is how the online scams got started. Some borrowers refuse to give them access to their personal bank account and choosing a secure loan using a postdated check. In this case, they undergo a longer, difficult process and waiting longer to receive the cash.
When someone gives access to their bank to make withdrawal like that, they are likely to be losing control of their bank account. Giving access to lenders is very dangerous. What can happen if you give access to the payday lenders?
Well, they will suck you dry, hitting you with overdrafts fees and leaving you without enough money to pay your bills or rent.
Sometimes, people take a second or third payday loans to repay the old ones. Well, you are making it worse. It rapidly gets out of control. One such individual is JoAnneh Nagler, a 42-year-old artist and author who also spends her days as a yoga teacher. Eventually, she decided to put approximately $80,000 on various cards in an attempt to finance her endeavors.
Check her story Women Pays off 80,000 in Credit Card Debt .
Guidance issued by the Federal Deposit Insurance Corporation in 2005 says that payday loans should not be made to anyone who has already been in debt from a payday loan for three months or more of the previous year.
For online payday loans, do your homework before you apply for one. Not all lenders are bad but some of them engage in these scams and make short-term loans a trap.
Featured photo credit: The Bureau of Investigative Journalism via thebureauinvestigates.com