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Consequences of Online Payday Loans and Scams

Consequences of Online Payday Loans and Scams

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).

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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.

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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?

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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.

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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

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Adnan Manzoor

Data Analyst & Life Coach

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Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

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Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

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Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

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