Payday loans are credit facilities that are designed to advance in short terms. The concept of ‘Payday Loans’ is not a new one, especially if you live in the western part of the world. There are numerous debtors who prefer to make use of this service and borrow money during the demands, preferably repayable by the next payday. But is the image so rosy? Like all other private lenders, payday loans also have some hidden facts and dubious lending practices that can easily trap a gullible borrower.
Here is a list of unfair practices that your payday lender will never reveal.
- exorbitant interest rates
Payday loans are available under the guise of easier loan terms, faster processing, flexible payment terms, and waived credit checks. However, all those good things also come with an interest cost in the form of ‘Annual Percentage Rate’. This interest rate can extend up to the 700th percentile of the loan amount and increase a borrower’s financial obligations.
A borrower should check and compare interest rates among various lenders and negotiate lower interest rates before accepting the loan offer immediately.
Payday lenders offer rollover payday loans when borrowers fail to pay debts on time. However, a borrower does not understand that this useful trend has associated reinvestment costs, which is enough to squeeze blood from the body. Borrowers don’t realize rising liabilities when they are mesmerized by the sweet words of lenders.
In many cases, a borrower is unable to project the exact cash requirement and ends up borrowing less money. When the borrower approaches a payday lender for an additional line of credit, he or she also pays the excess loan fees due to the increased value of the loan. This additional fee is added in lowercase letters in loan agreement documents that borrowers do not read.
A payday lender can charge heavy criminal charges in cases of bounced checks or declined automatic debit transactions. This penalty could extend to a quarter of the outstanding amount of the loan.
Apart from this, all payday loan agreements contain a clause that allows the lender to take legal action in the event of non-payment of the installment within a week of the bounced check. Criminal charges combined with the debt can even add up to double the amount of the loan and trap the borrower in a vicious cycle of financial and legal problems. Therefore, a borrower must ensure that sufficient funds are available in their repayment account on the installment day.
- Bodily presence of payday lenders
Not all payday companies have their physical presence in the area of operation. Most of them are shell corporations that disguise their individuality with fake trade labels or offshore corporations that have their registered offices on tribal lands or places like Costa Rica, etc. Such entities are exempt from all federal regulations and therefore it is very difficult for the borrower to sue the lender for charges of illegal practices.
A borrower should make sure that their payday lender has a corporate office close to their place of residence or at least in the same country. You should beware of third party lenders or online lenders without specific contact details. Registered lenders may perform certain identity and credit checks, but are governed by state rules. This can be beneficial to the borrower by providing lower interest rates and other related fees.
The Office of Fair Trading also cracked down in 2013, and several lenders closed or retired their lending business. However, a borrower should also be careful when availing a payday loan, either online or at the store’s office.