Payday Loan Checklist – Ten Things You Must Do Before Applying for an Online Payday Loan
Payday loans are short-term, high-interest loans fraught with financial, legal and personal information pitfalls.
The best way to avoid these pitfalls, of course, is to find a payday loan alternative.
If you have no other choice and must use a payday lender, however, there are ten things you must do to minimize risks and reduce exposure…
Before we look at the ten things, you must first have a complete understanding of payday loans:
You should never enter into any business agreement that you do not understand in full. You should understand the potential pitfalls of payday loans, study tips for reducing risks/costs and read through the third-party resources in our links section. You should also have a firm understanding of the advantages and disadvantages of various payday loan perks
Second, you must understand APR:
APR is the cost of credit that consumers pay, expressed as a simple annual percentage. APR allows borrowers to compare various credit options. A $15 fee on $100 for 14 days is not a 15% interest rate – it works out to 391% APR. To quickly calculate APR, please use the Payday Loan Calculator. (External Link)
It would also be beneficial to know your state’s payday loan and bad check laws. Understanding payday loan regulations will help you spot unethical lenders who disregard state regulations. Also, if you are late in your payment, some lenders threaten prosecution and civil suit. Knowing the bad check laws in your state will make it easier for you to spot empty threats.
Also, keep in mind that payday loans are meant only for emergencies and as a last resort after all other options have been exhausted.
If you understand the above, here are the ten things you must do before applying for an online payday loan:
- Create a Concrete Plan
Before considering a payday loan, you must have a concrete plan for:
- repaying the loan plus interest in full on your next paycheck
- survive the month after
If you do not have such a plan, do not take out a payday loan. It will only put you on the debt treadmill.
- Find a Legitimate Payday Lender
Physical (brick-and-mortar) payday loan shops are generally safer than online payday lenders. If there is one near you, visit them first. Physical shops reduce the chances of your personal information being intercepted and they are usually licensed in your state.
When searching for online lenders, avoid shops that advertise through unsolicited e-mail advertisements (spam), comments in online forums (comment spam) or in machine-generated search engine spam blogs (splogs – usually have “blog” in their URL, are poorly written and have excessive ads). You should never enter into a business arrangement or give personal information to companies that use unethical means of advertising.
If you use a search engine, it is better to avoid sponsored results. Most search engines order their results based on various criteria – number of incoming links, age of site, length of registration, originality of content, quality of coding, etc. Sponsored results, on the other hand, show only the highest bidders. Any website that pays a few dollars per click can be listed in the sponsored results even if they have no history or credibility.
Another way to look for lenders is to use our website to compare payday lenders by price and other criteria.
- Check APR
Legitimate payday lenders will have an APR table on their website. Please avoid lenders with no APR disclosure.
- Check Price
Legitimate payday lenders will be open about price. You should never do business with any company that hides their prices or any other information. If a site requires you to apply or register before showing you their prices, run! In most cases, mystery meat lenders are either publishers/affiliates, identity thieves or both.
- Check Contact Information
At the very least, a payday loan website should list detailed, complete contact information including:
- name of lending company
- physical address
- telephone number (preferably toll free)
- e-mail address
If contact information is not available, run. You are not dealing with an actual lender. Any information you provide to such a website will most likely be sold to marketers or identity thieves.
- Check License
Once you have the name and address of a lender, you can check to see if they are licensed in your state. Please refer to our list of State Regulatory Agencies for Payday Loans. Out of state lenders may be more expensive and may be bound by fewer restrictions than lenders in your state.
- Check WHOIS Registration
Check the website’s domain name in the WHOIS database. If the registrant contact information matches that of the lending company, there is a good chance you are dealing with an actual lender. If the website is registered by an individual (not a company) or the registration is private/hidden, you are not dealing with a reputable business.
Also, check to see how many websites share the same IP address. Search engine spammers and publishers/affiliates usually have dozens or even hundeds of websites on the same IP address. For more information, please read Avoid Payday Loan Websites with a Shared IP Address.
- Check for Encryption
Check the lender’s “apply” page and make sure they use SSL (secure socket layer) encryption to transfer data. SSL is a common protocol for securing data transmissions over the Internet.
One way to check for SSL encryption is to look at the url of the apply page. If it starts with http://, it is not encrypted. Pages using SSL encryption start with https://. If the “s” is not there, the page will not be encrypted. Depending on the browser you are using, you may see a small padlock symbol or the url window may change color for encrypted pages.
Please note that encryption is not a guarantee of privacy or security. If your computer’s security has been compromised, any information you type in with your keyboard may be seen by third parties. Also, if the website you are dealing with was set up by amateurs, there is a good chance that a hacker can gain access to your personal information after they have unencrypted and stored it on their end. For this reason, it is always safer to use a bricks-and-mortar loan shop.
While encryption is not a guarantee of security, lack of encryption is a guarantee that you are dealing with amateurs. You should only deal with professional lenders who are better equipped to protect your data from identity thieves.
- Check the Online-Payday-Loans.org List of Lenders
The list of lenders at Online Payday Loans can tell you if the website you are considering is an actual lender, a publisher/affiliate site or worse.
We list lenders by various criteria – all lenders, lenders who offer faxless payday loans, those who have toll free phone numbers and those who offer same day loans.
Lenders are listed first in order of type:
- L: Actual Lender
- P: Publisher or Affiliate
- U: Unknown
- X: Avoid
Deal only with actual lenders. Websites by publisher/affiliate middlemen waste time, money and put your privacy at greater risk.
Lenders within each group are then listed by price per $100 (from cheapest to most expensive. Remember that a small difference in fees will result in a huge difference it total cost of your loan. See Shop Around for details.
Finally, avoid lenders with a low rating.
- Phone Lender to Ask Questions
After you have checked out the lender’s prices, contact information and loan agreement, contact them using their toll free phone number to ask questions about the loan agreement. Make sure that you fully understand the agreement before entering into it. As they say:
He who asks a question is a fool for a day. He who asks no questions is a fool for a lifetime.
Another good reason to phone is to see the level of customer service they provide. If you have trouble contacting them now, you will have trouble contacting them later should problems arise. It is best to work with lenders who offer prompt and professional service by phone.
Also, remember these simple rules:
- only apply when you qualify (multiple applications may hurt your chances of getting approved)
- be honest (do not overstate income or understate debt)
- never borrow more than fifteen percent of your gross income
Again, these ten steps will help reduce the risks involved with payday loans but not eliminate them.
Please consider safer and cheaper payday loan alternatives.
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