Online Payday Loans

Truth in Payday Lending

Ten Payday Loan Pitfalls

Category: Articles — Tuesday, August 29, 2006

Payday loans are short-term, high-interest loans with numerous pitfalls and traps.

These include financial, legal and personal information risks.

Listed below are ten payday loan pitfalls…

The Month After

When you repay the loan on your next paycheck, will you have enough money to survive? A simple question but many people forget to consider their living expenses the month after they repay the loan. Most of these people end up on the debt treadmill.

For details and calculations, please read The Month After.

Debt Treadmill

The debt treadmill is the most dangerous trap of payday lending. It happens when you can only pay off the interest fees on your loan but not the principle. It means reduced paychecks and added hardship for you but excellent profit for the lender. That is why unethical lenders will give a low-income borrower a loan knowing full well they will not be able to repay it on their next paycheck.

See Debt Treadmill for details and calculations.

Credit Rating

Payday loans do not help your credit rating but they may harm it. Repaying payday loans on time does nothing for your credit rating. If you default on a payday loan and your account is sent to a collection agency, it may harm your credit rating.

See Credit Rating for details.

No Partial Payment

Most payday lenders do not accept partial payment. Either you pay off the entire balance including interest or you ‘roll over’ the loan multiplying the interest fees. There is no middle ground. Paying down the loan to reduce interest fees is not an option.

See No Partial Payment for details.

Personal Check Pitfalls

Many payday loan transactions are based on personal checks. If you are not careful, you may end up facing stiff NSF fees, losing your checking account or worse. Some states have strict bad check laws and you may find yourself on the business end of a civil action.

See Personal Check Pitfalls for more information.

Pitfalls When You Stop Payment on a Payday Loan Check

Before you try to stop payment on a payday loan check, be aware of the pitfalls. Stop payment orders incur expensive fees and lenders may try to cash checks when your stop payment order expires.

For more information, read Pitfalls When You Stop Payment on a Payday Loan Check.

Signing Away Legal Protections

When you sign for a payday loan, you may be signing away legal protections. Arbitration clauses are one-sided and put borrowers at a disadvantage in the event of a dispute. Many payday loan contracts include clauses that try to prevent you from filing a lawsuit but these have been ruled unenforceable in the United States.

See Signing Away Legal Protections for details.

Personal Information Risks

Online payday loans can put your personal information at risk. Internet lenders do not have physical access to your ID and other documents so they ask for a lot of personal information. This can lead to privacy invasions and abuse of your personal information including identity theft.

Read Personal Information Risks for details.

Faxless Payday Loan Pitfalls

Faxless payday loans are convenient if you don’t have access to a fax machine but this convenience comes at a price. Faxless lenders tend to be slower, more indiscrete, more expensive and may expose your personal information to third parties. It is usually better to use a fax machine at a Kinko’s or similar business to transmit personal information.

For details, please read Faxless Payday Loan Pitfalls.

Unwanted Commercial Messages

Spam spam spam spam. Lovely spam! Wonderful spam!

While it was entertaining in the Popular Monty Python Skit (External Link - Google Video), it is not so amusing in your e-mail inbox. Unwanted bulk e-mail (UBE - otherwise known as ’spam’) is one side-effect of using unethical payday loan sites. Will you be bombarded with unwanted advertisements about debt consolidation and credit cards?

See Unwanted Commercial Messages for details and what you can do to minimize your risk…

For more information about payday loans, please visit www.online-payday-loans.org.

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