Online Payday Loans Are Risky

[Dec 9, 2008.]

 

Payday loans are illegal in some states, but that hasn't stopped some online lenders from offering them to residents of those states. The Consumer Federation of American has a map to help you find out whether payday loans are illegal in your state.

No matter how difficult it is for you financially, you are better off avoiding payday lenders and finding some other way to pay your bills. Payday lenders offer small personal loans at very high interest rates that can surpass 400% a year. These personal loans are made against a borrower's next paycheck, while car-title loans are secured by their vehicle.

Some online payday lenders require you to provide all your information online, including your Social Security and bank account routing number. Once it's time to pay back these personal loans, your account will be debited, something that is difficult to stop until all the money has been paid back.

"Online payday lending is extremely risky for consumers," Jean Ann Fox, director of financial services for the Consumer Federation of America, told the Press of Atlantic City. "It's very hard to shut off access to a bank account. Theoretically you can, but in practice it's hard to do. We urge consumers never to borrow money from online payday lenders."

Some states that have outlawed payday loans have sued online lenders offering the loans to residents of their states. They've required such lenders to refund money to customers and stop doing business in their states.

Instead of using payday lenders, consider asking a friend of family member for a small personal loan. Draw up a contract that clearly states how much you are borrowing, the interest to be paid, and length of time you have to pay it back. It's better to avoid getting caught up in the never-ending cycle of trying to pay back payday loans at exorbitant rates and increasing your debt burden.

 

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.