Should you get a fast loan online?

[Jan 14, 2011.]

 

You may be desperate to get your hands on some cash. Maybe you need to come up with a couple of mortgage payments or pay the next round of tuition for your kid. Getting a fast loan from an online cash advance firm may sound like a good idea, but it's important not to rush into borrowing money this way.

Is getting a loan legal?

Sometimes…sometimes not. Cash advance loans, also known as payday loans, are not legal in many states. Check up on the laws in your state to find out if it is even legal for an online payday loan company to lend to you. Some states that allow payday loans have criminal usury laws that are designed to protect consumers and have capped the amount of interest that can be charged.

Many consumer advocates have complained for years about the exorbitant rates of interest associated with such quick loans. Be prepared to pay annual percentage rates (APRs) well into the triple digits--400 percent and up--if you get a cash advance loan. Many people who take out a quick loan believing that it's a one-time thing end up trapped in a cycle of debt that continues growing because of high interest. Most of these loans must be repaid at the end of a two-week period or they get rolled over into another loan with interest.

No credit checks

Despite the high costs, cash advance loans are popular with many low-income borrowers who struggle to make ends meet between paychecks. Even people with bad credit can apply for a payday loan since there are no credit checks. You just need to have a bank account and a regular source of income, such as a paycheck or social security check.

Loans and your bank account

Online payday lenders usually require a credit card or bank account number when you sign up. If you can't pay back the loan when it's due, the lender may withdraw the interest from your account and automatically renew the loan. Borrowers must have enough in their bank account to cover the interest payments or they will pay insufficient funds fees to their bank and the payday lender.

The other thing to remember about online cash advance loans is that not all companies offering them are reputable. Always do your homework; to lessen the chances of being scammed, check out companies you plan to do business with before giving out account numbers, social security numbers, and other personal information.

 

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.