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Pay Day Loan Scams
Every
year countless working class Americans fall victim to
pay day loan sharks. Consumers who are looking to get
a little extra cash in advance are being charges extremely
high interest charges. A lot of states have enacted
laws to stops these scams on low income families but
now many loan sharks have moved their businesses onto
the internet, where state by state jurisdiction is still
in question.
Pay
day loans are ideally a system of short term borrowing
to make it through a week or two before the customer
is paid again, at which time the amount of the loan
and a fee would be paid in full. The idea of a pay day
loan is appealing, and would work if there were not
numerous loan sharks out to sabotage individuals in
financial need. Most short term loan companies today
charge outrageous fees that set back the consumer even
further in debt. For instance, if you needed to borrow
one hundred dollars, you would write the loan company
a check for around one hundred fifteen dollars. The
lender, depending on your agreement, will hold the check
to deposit at a later time, usually your pay day. When
that day comes around you may find yourself in trouble
again because your entire new paycheck is going toward
paying back the loan company. Most loan sharks recognize
this problem and are always quick to offer roll-over
plans. This is where the company will agree to hold
your check even longer, for additional fees of course.
Sometimes the loan sharks will even offer to lend you
more money in addition to holding the first check payment
longer. This is where all of the high fees add up. If
you roll-over the initial one hundred and fifteen dollar
loan pay payment a few weeks you could be looking at
a 100% interest charge.
By
law, under the federal Truth in Lending Act, pay day
loan costs must be disclosed. Many different informational
items are to be given to the consumer, this includes
finance and annual percentage rate (APR) charges to
be given in writing. Most borrowers from small pay day
loan operations are not given a good explanation of
these items. Finance fees, are to be given on paper
as a dollar amount. The Annual percentage rate is referring
to the cost of credit on a yearly basis, also to be
given to the consumer in writing.
Most
legitimate and knowledgeable financial advisors will
tell consumers to avoid borrowing from pay day loan
companies, period. In a lot of cases it may be better
to consider getting extra cash in the form of a small
loan from a local credit union, a small loan company,
your employer, or friends and family. Credit cards also
sometimes offer cash advances, however, they can also
have high fees that need to be watched out for. Whatever
option you are looking into always compare APR and finance
charges from credit offers to get the lowest personal
cost. It is also important to ask your creditors what
they charge for late payments. With today’s competitive
market of legitimate lenders, many companies are offering
fewer to no penalties for payments that are not substantially
late.
A
very good piece of advice would be to set up a savings
account so that you have funds available in times of
need. For instance, you could obligate yourself to take
what you would pay an advanced fee loan company in interest
and put that in a savings account. Setting up a repetitive
habit of this instead of roll-over borrowing will add
up, leaving you a security nest egg.
If you need additional financial advice, contact a consumer
credit counseling service. Legitimate operations will
work will you to sort through finances and make a working
budget. In some cases counseling services will even
offer to set up a dept management plan for the consumer.
However, these plans should only be enacted as a near
last resort and with the consumer having a complete
understanding of the process.
The
best advice for consumers who insist on getting a short
term loan from pay day loan companies is to never borrow
the whole amount of your next check. If you are going
to be getting paid three hundred dollars then only borrow
around one hundred from the advance pay day company.
Also, try to never use a roll-over option because the
fees will eventually exceed the original loan amount.
If you think a lender has not been honest and is violation
the Truth in Lending Act, then file a complaint by contacting
the Federal Trade Commission at 1-877-382-4357. You
can also file a complaint online at the ftc.gov.
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