Payday Loans Problems Payday Loans Sites Might Give Borrowers
The online application process for payday loans is fast and simple. Loan approval is instant and cash is deposited straight into the applicant’s bank account. Despite such convenience, exercise extreme caution when applying for payday loans.
High interest rate
Payday loans are available even to people with bad credit. This short term unsecured loan requires no collateral from the borrower, so it is quite easy to apply for payday loans. However, this loan has a feature that can be the source of potential problems.
These loans have higher interest rates than regular loans. Many payday lenders have websites where they declare their finance charge, which usually ranges from 25% to 30%. There are quite a number of lenders that have a fixed rate of £25 for every £100 borrowed, which gives an APR or annual percentage rate of 650% if repayment is done in two weeks. If a borrower chooses to get a loan that will be repaid in one week, the rates that would apply are even higher. There are even payday loan lenders that offer loans with APRs that are as high as 780%.
Payday loans sites are required to disclose the annual percentage rate on their payday loans to interested borrowers prior to filing of application. Nonetheless, there are sites that do not readily disclose it. Any delay in disclosure of APRs may cause potential payday loans problems payday loan sites borrowers must be warned about.
Repayment of payday loans is due on the borrower’s next payday, and many payday loan sites automatically renew loans. The finance charge is electronically withdrawn from the borrower’s bank account, and the loan is then extended for two more weeks or until the borrower’s next payday.
The finance charge is not credited to the principal loan amount. For example, if a borrower has a loan of £500, the payday loan company may collect £125 on the first payday when the borrower was unable to pay the loan in full. Two weeks later, on the borrower’s next payday, the lender will collect another £125 if the borrower is still unable to pay the entire loan amount. This means that the borrower has renewed his or her loan two times, and paid a total of £250, but his or her debt still remains at £500.
Because of automatic renewal there is a great possibility that the borrower will have great difficulty freeing himself from debt. This is one of the payday loans problems payday loan sites can give to borrowers.
If finance charges and repayment amounts were electronically withdrawn from a borrower’s bank account, potential payday loans problems payday loans sites may cause would be in relation to additional fees that are charged in the event that a borrower has insufficient funds in his or her bank account.
If a borrower does not have enough funds in his or her bank account to cover for the finance charge or repayment, the bank will charge certain fees for insufficient funds. This bank charge plus the charge of the loan company for insufficient funds will be added expenses to the borrower, which will further burden him or her.
The same payday loans problems payday loan sites cause will also be experienced by borrowers who issued postdated checks to the payday loan company as payment for the full loan amount and finance charge. If a borrower has insufficient funds to cover the amount in the check issued to the loan company, the bank will have to charge a non-sufficient funds fee. Issuing bounce checks will lower one’s credit score and might make it difficult for the borrower to open another checking account in the future.
When a borrower is unable to repay his payday loan for quite some time, the payday loan company will refer the borrower’s case to a collection agency. The collection agency will exert aggressive collection practices to collect from the borrower. This will result in stressful payday loans problems payday loans sites can give.
Borrowers who are unable to repay their loans can expect numerous nagging phone calls from collection firms, which can be annoying and intimidating. Some loan companies may even threaten borrowers with a lawsuit if state or country laws allow them to do so. This can be quite a stressful experience to a borrower.
There are many other payday loans problems payday loans sites can give to a borrower. When a borrower applies for a payday loan, he or she is required to fill out an online application form or fax a completed application form, which contains personal information, a bank account number, and social security number.
Providing information regarding bank account numbers and social security numbers through the Internet is a security risk. Although many payday loan lenders assure loan applicants that their website is a secure site, there is still a possibility that there some payday loan companies are not trustworthy and may misuse the information that borrowers provide them.
Quick payday loans will give you fast cash when you need it most, but payday loans have a number of disadvantages too. The different payday loans problems payday loans sites can give to borrowers should be carefully studied and evaluated. It is always wise to carefully weigh the advantages and disadvantages of getting a payday loan before hastily applying for one.