What’s behind payday loan scams?

Vikas S By Vikas S, 19th Jan 2016 | Follow this author | RSS Feed
Posted in Wikinut>Money>Loans

Take the repayment past two or three years and you’re talking about thousands of dollars owed to a predatory lender.

Payday Loan Scams

Since the dawn of time, people have been trying to make something for nothing. In modern times, this phenomenon has manifested itself in the market of short-term lending. Incredibly high interest rates and horrible repayment terms is about as close to a definition of usury as we’ll see in the free-market. What’s scarier? The stupidity of people that take advantage of these options. Okay, maybe stupid is too harsh, but if you argue they’re desperate, then they probably made some pretty stupid financial decisions to get to the point where desperation equals predatory lending.

Desperation and Lack of Financial Education
Fine, I’ll back off stupid. It’s a sad situation where poor life decision or circumstances have led to the financial failure of an individual or family. Maybe it was a lack of financial discipline to create an emergency fund. Or, maybe it was a personal disaster that has led to being financially wiped out.

The answer to solving the payday loan crisis in America is to provide meaningful financial education to consumers. In the end, even if we attack payday loans, without financial education, we’ll still have families and individuals in absolutely horrendous financial shape.

Payday Loans with Exorbitant Fees and Penalties
Anyone applying for a payday loan is applying because they can’t access more affordable sources of short-term lending. Credit Unions and banks offer emergency loans with much more reasonable repayment terms and interest rates. However, credit scores and negative financial history can lead to being denied.

So, if you’re a company trying to make money, you have to compensate yourself for the risks that you’re taking on. The likelihood that you’ll have difficulty being repaid is pretty high when you’re dealing with high-risk credit customers. It’s understandable that a company will want a high amount of interest in return for the risk they take on, and quick repayment so that they can limit the extent to which they expose themselves to risk.

Further Financial Harm

As many online financial blogs, like Elite Personal Finance have pointed out, payday loans can easily do more harm than good. If you’re having trouble with your personal cash-flow, then paying a high-interest loan back is a great way to increase the squeeze on your finances. Because many lenders require you to give them a future-dated check set to come out of your account on your next payday, if you don’t have the funds in your account when the check is submitted to the bank, you’ll cause an overdraft.
Overdrafting has fees, and can potentially result in criminal charges for writing a bad check. Although this is rare, many payday loan companies are up-front in their terms about the fact that they have the option to go after you criminally for supplying them with a bad-faith check.

If you fail to pay back your payday loan, the initial loan amount continues to gain interest as time passes. With interested rates at 200% or more, a $200 payday loan could turn into more than $700 of debt in one year.


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Meet the author

author avatar Vikas S
Vikas Solanki is a leading IT & Business consultant and author. A seasoned expert in Inbound Marketing, Search Engine Optimization, Search Engine Marketing, Social Media, Web designing, Content Manage

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author avatar Fern Mc Costigan
20th Jan 2016 (#)

The unfortunate side of this cancer is that you are in need of its use. Despite the Government to get rid of it, still people need this payday loan with 300% interest to make ends meet. Sad but true, cheers!

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