PayDay loans are a popular way to borrow cash quickly when you are in a bind. According to The Florida Department of Agriculture and Consumer Services, PayDay lenders providers offer short-term loans to the public for a fee. To secure the funds they hold a check from the borrower. As of late on the news, PayDay lenders have received a bad rap, but are they really a scam or bad idea?
How Do They Work?
Payday Loans and can usually be found in most metropolitan areas or online. PayDay lenders offer short-term loans designed for working consumers seeking temporary financial relief. The loan is in the range of $500 or less and repayment is due on the borrowers next pay period. The borrower provides a paper check or automatic electronic debit for the amount borrowed plus a fee to the loan provider. The check will be cashed or debited on the agreed upon date. It sounds simple and straight forward. Then why do they have such a bad reputation?
PayDay Loan APR
PayDay loans are easy to obtain. If you have verifiable employment and a checking account, then a short-term loan can be yours for the taking in minutes. However, the interest rates are through the roof. The laws governing the PayDay lending industry vary from state to state. However, the rates can range from 10-40%. Borrowers get themselves into a jam if they do not have the funds to cover repayment of the loan on the agreed upon date. The interest begins to rapidly increase and compound. The APR on a PayDay loan of $100 loan can balloon up to 391% to 3,733% or beyond, if full repayment is not made immediately. PayDay lenders tend to target the most vulnerable consumers. Ones that have low-income and are experiencing credit issues. The punishing APR’s and short repayment times catch many borrowers off guard. Some borrowers found themselves caught in a borrowing cycle and burdened with debts they are not able to repay.
Tips to Protect Your Wallet
Beware, PayDay Loan companies are legitimate operations, however there is a flood of PayDay loan scammers looking to take advantage of cash strapped victims. Here are a few tips to protect your finances.
*BE CAREFUL – Online borrowing may be more convenient, however it poses dangers to your bank account. Once, a sketchy PayDay loan company or scammer has gained access to your banking information, they have the ability to withdraw money from your account on their terms. You will have little recourse to recoup your funds from the bank account once a third party has been granted access.
*BE FINANCIALLY SMART -Don’t be tempted to take out the maximum loan limit. Borrow only what you need and are able to quickly repay. Do not depend on PayDay loans as a regular lending source.
*DOUBLE CHECK -You can verify whether the PayDay loan institution you are dealing with is licensed by checking with the BBB or an official state government website.
*Additionally, providing your contact information to a PayDay loan scammer can expose you to aggressive collection tactics.