What is a payday loan? It sounds relatively simple. Just go online and type payday loans. A long list of available payday lenders emerges. Borrowers treat these small loans as a temporary fix to be repaid once their paycheck is directly deposited into their bank account. What could be so bad with that? Plenty!
Most payday lenders require no credit check. Then the lender asks for your bank name and account number so they can collect your payment directly from your account. This can all be accomplished hassle free in minutes. The problem is the loan can’t be repaid that easily and the consequences can be costly.
If you want to repay your online payday loan in full, you must contact them three days prior to the next withdraw. If not done, your loan is automatically renewed. Further, if you attempt to stop these automatic authorized withdraws, your bank more times than not, fails to do so. The consequence of this failure is that your account may become overdrawn and you can incur insufficient fund fees, extended fees and service fees. A skeptic could reasonably infer that your bank has a financial incentive to not honor your request to stop the automatic withdraw. That leaves the borrower with only three solutions to either stop these withdraws, get another payday loan, change banks or file bankruptcy.
According to the Pew Charitable Trusts report published in a July report, approximately three million Americans obtained an internet payday loan in 2010. Payday lenders have moved their place of operations to off shore locations (Belize, Malta, Cancun, the Bahamas, Costa Rico and the Isle the Man) primarily to avoid lawsuits for violating interest rate limitations (as high as 521%) and actionable collection tactics. If you look closely on any website you will almost never find either an address or phone number.
In summary, if you are considering obtaining a payday loan on the web, it might be time to have a thorough review of your overall financial situation. Not-for-profit debt consultants or a reputable bankruptcy attorney can provide an overall plan to escape the payday lenders tentacles.