You’ve probably heard radio advertisements promising, “Easy credit with immediate approval!” Or maybe you’ve come across online ads declaring, “The money you need is just a click away,” while visiting your favorite websites. These enticing offers, known as cash advances or payday loans, can be far more complex and problematic than you might think.
What Are They?
Payday loans or cash advances are relatively small-sum ($100 – $1,500), short-term loans (30 days or less) repaid via postdated check or automatic withdrawal at the time of the borrowers next paycheck. Individuals who take out payday loans are usually in need of a quick, one-time cash infusion. Unfortunately, what was intended as a stopgap to cover an unexpected expense can result in a repayment far beyond the amount borrowed. This is largely due to hefty finance charges and above average annual percentage rates (APR) tied to these loans.
What to Watch For
In the past, payday lenders came under scrutiny from state and federal regulators, with most of the attention focused on dubious collection practices and a lack of transparency regarding the loan terms. And for some unassuming consumers unable to keep up with the mounting finance charges, this meant getting caught up in vicious debt spirals.
In addition to these concerns, borrowing from an online payday lender could pose even more problems. And despite the convenience, you should exercise extreme caution and think twice before utilizing such services. Keep in mind, not only the risks associated with borrowing from unknown entities, but also in submitting private and personal information to an unsecure website. If you’re not careful about researching a lender’s reputation you could lose your hard earned money or worse yet, your identity.
Discover a lender you suspect is operating illegally or unfairly? You can find the procedures for filing against violators on the Department of Labor, Licensing and Regulation’s website.
Plan and Prevention
The best offense against seedy lenders is of course, avoiding them altogether. While it’s impossible to know when an emergency might arise, having a plan in place will help you better manage your finances in the event of a sudden crisis. We recommend creating a weekly or monthly budget, and allocating a certain percentage of your income to a savings or money market account or if your budget is tight try finding small ways to cut back on expenses. You’ll discover something as simple as bringing a lunch from home and saving the cost of buying take out everyday can really add up over time.
If circumstances are such that you find yourself in need of monetary assistance, examine options available through trusted financial institutions. Bank loans and other services like our Checkline for personal overdraft protection as safer sources of short-term cash.
Financial struggles can be difficult to grapple with especially those out of your control. Start saving, and be sure to seek help from trusted sources before participating in the payday lending game.