Payday Loans

Payday Lenders And The Hidden Catch Behind “Quick Loans”

need no introduction at all. They are very popular (or infamous?). There has been an ongoing debate about the kind of quick loans these lenders offer and how lucrative loan programs often turn out to be a financial nightmare for the consumers. The real culprit is undoubtedly the high rate of interest, but this is not the only thing. In order to get a clear picture on where the exact problem is and how these lenders become predators and the consumers prey, you must also look into several other aspects that are associated with these seemingly lucrative loan programs.

The Upper Limit Of Interest Rate

Though almost every state has enacted certain laws to make sure Payday lenders do not charge unreasonably a very high rate of interest. In Ohio, the upper ceiling is 28%. In Florida, it is 10%. The unfortunate thing is that most of these lenders still find certain loopholes in the laws. You may be surprised to know that despite the legal restrictions, many lenders are still charging as much as 600% per annum on payday lending programs. In Florida, it has been found that short-term cash advances are being given in another form (which does not meet the legal definition of payday lending). The loans are given at a very small rate of interest that meets the legal restrictions, but when the borrowers cash those checks, a substantial amount of money goes back into the lenders’ accounts, which eventually makes it a very expensive option.

Consumer Unawareness

Unawareness about the laws in this field is another major reason that helps many payday lenders to run their quick loans scams. Surveys have found that most consumers are unaware of any such laws that protect the interest of payday borrowers. Those who have a clear understanding of what the laws have to say about it read the terms and conditions of the agreement thoroughly, and if they find anything suspicious, they either look out for another genuine lender or take necessary legal actions against the unscrupulous organizations.

Automatic Rollover

When borrowers do not pay the loan in time, the loan is automatically renewed. This compulsory rollover combined with the very high rate of interest and an unreasonable penalty charge makes the debt look horrible for the borrower. The debt often grows very fast; within a month, it can become 1.5 times of the actual amount of money borrowed. In two months, it can just become double of the actual debt. Since payday lenders target those consumers who have fixed, hand-to-mouth monthly salary, it often becomes almost impossible for the borrower to repay the loan in full after one or two rollover. This pushes them into a never-ending cycle of debt, where the outstanding amount keeps growing very fast with every passing month. Though many lenders do provide an option to pay in installment, but even that does not help much because of the rapid growth in the outstanding due.

Bad Financial Decisions By Borrowers

Worse, many borrowers try to repay one by taking another. This is the worst financial decision that a person can ever make. There are also people who often take these loans to pay off their existing low rate debts. They take these loans to get necessary fund in their bank account to prevent checks from bouncing. Because of these nonsense financial decisions, they often end up having multiple cash advances and get caught in a serious debt trap.

It is very important for you to note that many states now have also enacted laws regarding the number of loans payday lenders can issue to a single borrower within a year. In general, the maximum number of loans should not be higher than one at a time and four within a year.

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Posted in Payday Loans, Risk Factors | 2 Comments »

2 Responses to “Payday Lenders And The Hidden Catch Behind “Quick Loans””

  1. Azucena Bussmann says:

    Your article is very good yet little short. I hope you next articles could be little more elaborate that this one. Still good job.

  2. michael says:

    The article has done a great job to aware people about the unscrupulous pay day lenders. Awareness about the laws, rules associated with pay day loans is very necessary. Most of the states have decided the upper limit of interest rate but people do not know about it and they give a very high rate of interest. Creditors also try to discover a new way to cheat their consumers and the consumers who does not have flexibility in their income find number of ways to avoid the conditions of the creditors. They have to pay a hefty amount due to heavy interest on the actual amount. If they can not make some payments, the amount may be just double and it becomes impossible to do the repayment of total amount. Any individual who does not have some emergency fund or saving fund, takes such type of pay day loan and eventually get caught in a debt trap, he tries to get out from the debt trap and take one more loan to pay off the existing loan and the situation becomes really complicated to handle. Your awareness of laws can save you from getting into multiple debt trap.

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