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Online Payday Loans - Four Pros and Cons

[Jun 11, 2009.]


People who need payday loans don't have to drive down to their local lender's store, queue up, fill in forms, and hang around while their application is processed. They can do the whole thing online in the comfort of their own homes. Too good to be true? Sometimes it may be.

Online Payday Loans Growing

Most Americans rarely think about payday loans at all. But when they do, they usually picture one of those bricks-and-mortar outlets that one nowadays finds in strip malls all over the place.

But more and more people are turning to the Internet for their short-term borrowing needs. According to the Center for Responsible Lending (CRL), a leading consumer advocacy group, in 2008 the loan volume at stores was about $35 billion, while online payday loans accounted for $7.1 billion.

Online Payday Loans - Pro #1

Most people care what their neighbors think of them. And, for some, the idea of being spotted entering or leaving a payday loan outlet is just too horrible. That whole scenario can be avoided if they apply online in the privacy of their own homes.

Online Payday Loans - Con #1

By far the biggest con with online payday loans is that some of them are… er, cons. Or, at the very least, they may be scams that are designed to entrap and milk vulnerable borrowers. One big problem is that the Internet provides unscrupulous lenders with anonymity, which makes it difficult to enforce one's rights.

A couple of weeks ago, the Huffington Post ran a piece about online payday loans, and quoted a consumer protection lawyer as saying: "It's hard as hell to find these people. You can't communicate with them and tell them what they're doing is illegal."

The CRL web site goes even further about online payday loans. It says: "Internet payday lending adds security and fraud risks to payday loans. Consumers apply online or through faxed application forms. Loans are direct deposited into the borrower's bank account and electronically withdrawn on the next payday. Many Internet payday loans are structured to automatically renew every payday, with the finance charge electronically withdrawn from the borrower's bank account."

Online Payday Loans Pro #2

Those who wish to enjoy the privacy and convenience of taking out online payday loans can do so more safely if they just follow the golden rule of buying any financial service: always research before signing up.

Here are three top tips for those about to borrow:
1. Put the name of any lender into a search engine and see if many consumer complaints or warnings come up.
2. See if the lender belongs to the Online Lenders Alliance, which represents the interests of those who offer online payday loans. The OLA doesn't have legal teeth but its members are supposed to comply with a fairness code of conduct.
3. Read lenders' web sites carefully, and gauge its tone, as well as its terms and conditions. Which lenders seem responsible?

Online Payday Loans Con #2

It's a payday loan!!

As one seemingly responsible company that itself offers online payday loans says on its web site: "Payday loans can be very costly. Borrowers should use them with caution and pay the amount back as soon as possible…

"Before you consider applying for a payday loan, step back and consider your options.
Ask yourself if it really is an emergency. Payday loans can be helpful for one-time emergency costs such as medical fees but are not a good idea for funding unnecessary expenses. Is it possible to wait to repair your car or pay your bills until your next paycheck?"

Good advice.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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