Payday Loan Scams
How come it is always when you are at your lowest point in the month financially that something goes wrong? The car breaks down and needs repairs, the dog cuts his leg and you need to take him to a vet or one of the children come home from school and tell you that there is a school trip next week and they need $50 to go on it.
Even for those people who have the best household budgets things can go wrong and no matter how much we juggle the figures it soon becomes clear, that without an extra couple of hundred Dollars in your pocket there is no way that you will make it to the end of the month unless you and your family can live without eating for a week.
Payday loans are aimed at those people who need extra money to tide them over until payday.
What Is A Payday Loan?
A payday loan is exactly what it sounds like, it is a short term loan of money from a company that you pay back in full with interest on the day that your wages get paid into your bank account.
When you apply for a payday loan you will be subject to a credit check, if you manage to pass this then the money you asked to borrow could be transferred into your bank account within 30 minutes.
The main problem with a payday loan is the amount of interest which can be as high as 50% in some cases, although the average cost is around 35%, even at 35% it would cost you $135.00 for every $100.00 that you borrow leaving a massive drop in your family budget for the following month.
Of course this leads you into a vicious circle, because you have less money to budget with the following month you again opt for a payday loan to tide you over.
Payday Loans Can Bleed You Dry
Payday Loans Have Hidden Charges
So you have taken out a $500.00 payday loan for the first time in your life and you know that for this service you are going to have to pay back $135.00 for every $100.00 that you borrowed.
You work out your family budget for the following month based on those figures and you realise that if you cut some corners and squeeze it to the limit you will just about cope for the month with nothing but fresh air to spare.
You check your bank account on payday expecting to see $675.00 taken from your account to pay off your loan in full and you discover that indeed your loan has been paid in full but for some strange reason the company who loaned you the money has actually taken $825.00 out of your account.
First Time Payday Loan Charges
Most payday loan lenders don't advertise the fact that for first time users there is a charge of up to $150.00.
This charge is said in most cases to be for the initial sign up with the company and to cover the cost of running credit checks.
You should always read the small print carefully when you apply for a payday loan because even if you are refused a loan from them you can still be liable to this charge.
Payday Loans Charges for Missed Payments
Lets just say, for the sake of this article, that for some reason your salary from work was delayed in getting to your bank account by one day and because of this you were unable to pay off your payday loan due to insufficient funds in your account. You then make a phone call to your lender explaining the problem to them and being an understanding company they will completely understand and try to help you in two ways.
1. They will go into your bank account in the next couple of days to collect their money.
2. They will roll your loan over until the following month and take your payment then.
You come of the telephone feeling relieved that it has been sorted out.
Yes it may have been sorted out but it is really going to cost you, there is a charge for late payment of around $50 and it will be taken off along with your loan.
The best option to choose in that situation is to let the company go into your account within a few days for their payment because the late fee is the only extra that they will take from you.
If you agree to roll over the loan to the following month you are letting yourself in for a massive shock when the repayment is taken.
Your loan of $500 or in total $825 after sign up fees and interest has suddenly jumped to $1113.75 because the company will consider your roll over as another loan to you and charge the 35% on the money that you already owe them.
Your original $500 loan is now costing over double to be paid back and if you also add in any bank charges for your missed payment you begin to realise that a payday loan may not have been the best idea that you ever had in your life.
Payday Loan Price Comparison Sites Scam
When I was researching this article I made a massive mistake I went online to look at payday loan comparison sites to check out how much the average charges for a quick loan would be.
I went onto a "Free" website, which I can not name for legal reasons, and gave my details so that they could "Find the best lender to suit my needs," I had to give my banking details before I could get any further in the site and see my best deals.
After looking through the deals I clicked on the option to exit without taking my loan application any further.
At the end of the month I went into my bank account and found that there was around $120.00 less in it than I was expecting.
I discovered that the comparison website had charged me for finding the best loan companies to "Suit my needs,"
I went to the website and discovered hidden away in a hard to find place that there was a charge for their service if you do not cancel your registration within 14 days.
Beware that this does not happen to you too, always look for the small print and don't give your bank details to any company until you are sure that you want a short term loan.
Things To Consider before Applying For A Payday Loan
If you really need to take out a payday loan to get you through the month then it is quite obvious that you cannot really afford to take out a payday loan in the first place because it will in effect leave you a shortfall in your budget in the following month unless you have extra money coming in that will cover your loan and its costs.
- Can you afford to payback the total cost of the loan in one payment?
- Do you really need the money or could you make it through until the end of the month at a push?
- Can you delay a payment to another company for a few days so that you can use that money?
- Is there any other way that you can get your hands on some extra money?
- Will a payday loan affect my credit rating?
A lot of financial lenders will not give a loan or mortgage to someone who has taken out a payday loan believing that they are struggling to get by from month to month.
Payday Loans And You
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Payday Loan Alternatives
Taking out a payday loan should always be considered a last resort especially if there is another way to find the money you need without having to worry about extortionate interest charges and other hidden fees.
- Can you borrow some money from a family member or a friend?
- Do you have anything of value in your home that you don't use anymore and can sell?
- Does anyone owe you money that you can get back?
- Do you own any stocks or shares that you can cash in?
- Have you asked your bank for an emergency one off overdraft? there will be interest but it will be much cheaper than a payday loan.
- Is there any other way that you can get money?
You should try to avoid taking out a payday loan at all costs because it leads to a vicious circle of borrowing and paying back simply because of the charges that leave you short of money from month to month.
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