subject: Warnings About Payday Loans [print this page] Warnings About Payday Loans Warnings About Payday Loans
Consumers are being warned that they should exercise a significant amount of caution when the use a payday loan website on the Internet. This warning is coming from the Consumer Federation of America (CFA). These payday loan websites on the Internet offer loans that are due to be repaid by the following payday, usually charge annual interest rates (APRs) of 650 percent In accordance with to a study conducted by the CFA of one numerous payday loan websites, the small loans that involved the use of the Internet, access to a consumer's checking account electronically can present a danger to consumers who use the Internet to borrow money by sending their personal financial information by means of the Internet. Payday loans that are conducted over the Internet charge exorbitant amounts of interest and have to be either refinanced or repaid by the borrower' the following payday. Many of the lenders who were surveyed said that they renewed the loans automatically through electronic means to withdraw the finance charge from the borrowers' checking account on their next payday. If the borrower fails to have sufficient money in the bank to cover the repayment or finance charge, both the bank and the lender of the payday loan will impose fees for insufficient funds. Payday loans on the Internet are marketed through referrals, paid advertisements, searches done on the Internet, and emails. Usually the borrower either faxes a completed or fills out an application form on the Internet that requests personal information, such as the signed paperwork, employer information. Social Security Numbers and bank account numbers. The consumer must then fax the signed paperwork, copies of a recent bank statement and a check to the payday lender. The loan is then deposited directly into the borrower's checking account and the finance charge or the loan payment or is withdrawn electronically from the consumer's account the following payday. Payday loans that are taken out on the Internet can be dangerous for borrower's who are in need of some quick money. They combine all of the collection risks and the high costs of a payday loan with the security risks of transmitting Social Account Numbers and bank account numbers to the websites in the Internet to a lender that is unknown. During the study conducted by the CFA, just 38 websites disclosed their annual interest rates for payday loans before the borrowers completed the application process, although 57 websites did disclose the finance charge. The APRs that were most often disclosed were 652 percent and 780 percent. While payday loans are due on the consumer's next payday, many websites will renew the loan automatically and withdraw the finance charge from the consumer's bank account and extend the payday loan until the next payday. Of the 100 websites that were surveyed, 65 allow payday loan renewals without reducing the in principal. At some of the lenders the borrower has to take extra steps to repay the payday loan. Sometimes following many renewals, some payday loan lenders require consumers to reduce the principal on the loan with each renewal.
