Payday loans are credit instruments designed to be issued in advance in the short term. The concept of “payday loans” is not a new concept, especially if you live in the western part of the world. Many debtors are more willing to use this tool and borrow money in an emergency, preferably before the upcoming payday. But is the picture so rosy? Like all other private lenders, payday loans also have hidden facts and suspicious lending practices that can easily trap borrowers who are vulnerable.
This is a list of unfair practices that your payday lenders will never reveal.
- High interest rate
Payday loans can be obtained under the guise of easier loan conditions, faster processing, more flexible repayment terms, and exemption from credit checks. However, all these good things will also generate interest costs in the form of “annual interest rates”. The interest rate can increase the loan amount by 700% and increase the borrower's financial liabilities.
The borrower should cross-check, compare the interest rates between the lenders, negotiate on the lower interest rate, and then accept the loan offer immediately.
- Loan carry-over fee
When the borrower is unable to repay the debt in a timely manner, the payday lender will provide a rollover of the payday loan. However, the borrower cannot understand that this useful trend will be accompanied by a cost of circulation that is sufficient to squeeze blood out of the body. When borrowers are plagued by the sweet words of lenders, they are not aware of the increase in liabilities.
- Multiple loan trap
In some cases, the borrower cannot predict the exact cash requirement and ultimately can only borrow less. When the borrower seeks additional credit facilities from the payday lender, he also pays excess borrowing costs for the increased loan value. Additional fees are added in lowercase letters to loan contract documents that the borrower cannot read.
- Check bounce fine
Payday credits can charge a large fine when a check is returned or an automatic debit transaction is rejected. The fine may be extended to a quarter of the outstanding loan amount.
In addition, all payday loan agreements include a clause that allows the lender to initiate legal proceedings when the installment fails to pay off the installment within one week of the bounce. Plus the debt fine can even reach twice the loan amount, putting the borrower in a vicious circle of financial and legal issues. Therefore, the borrower should ensure that there is sufficient funds in the repayment account on the installment date.
- The existence of the payday lender entity
Not all payday companies have entities in their operations. Most of them are either shell companies that cover their personality with fake commercial labels, or offshore companies that have registered offices in tribal land or Costa Rica. Such entities are not subject to all federal regulations, so this is a big challenge for borrowers to sue lenders for illegal activities.
The borrower should ensure that its payday lender has a corporate office near its place of residence or at least in the same country. He should be cautious about sub-station lenders or online lenders, without specific contact details. Registered lenders may perform certain identity and credit checks, but they are subject to national regulations. This may be beneficial to the borrower by offering lower interest rates and other related fees.
The Fair Trade Office also took drastic action in 2013, and several lenders have closed or revoked their loan business. However, borrowers should also be cautious when using payday loans [whether online or at the store front].