Payday Loan Scams: How to Avoid Costly Mistakes with Payday Loans
Every year approximately 10 million Americans apply for payday loans.
Payday loans can be a viable option if you are in a bind and need money quickly to tide you over until you get your next paycheck.
At the same time, though, there are also a lot of payday loan scams out there, and it can be hard to tell which lenders are credible and which ones aren’t.
If you’re considering a payday loan, it’s important to be informed about the differences between reputable and disreputable lenders.
Read on to learn more about payday loans and what you need to do to avoid payday loan scams.
What are Payday Loans?
Before you go out and apply for a payday loan, it’s a good idea to know exactly what you’re getting into. Not only with this help you to avoid payday loan scams, but it will also help you to increase your chances of getting approved.
Payday loans are short-term loans that often do not require a credit check. They are designed to act as an advance on your paycheck.
Many people apply for them when they’re short on cash and need a little extra to carry them through until the next pay period. Usually, the date of your next payday is the day by which the loan needs to be repaid.
Payday loans have very high interest rates. In fact, the average APR is 400 percent.
Because of these high interest rates, it’s important for folks who take them out to make sure they can repay them quickly. Otherwise, they’ll end up in more debt and with a worse credit score, which can make it harder for them to get loans in the future.
Common Payday Loan Scams
It’s not always easy to tell whether or not you’re signing up for a payday loan scam. Here are some red flags you ought to be on the lookout for, though:
High Upfront Fees
Sometimes, payday lenders will charge you a large upfront fee. They’ll often claim that they need this fee to process your loan application.
If a lender charges you money to process your application, run the other way. They’re most likely a scammer.
Sometimes, you’ll get phone calls from people offering to give you a payday loan. Be wary of any lender that seeks you out. It should always go the other way around — if you didn’t apply for a loan with them, don’t trust them when they give you a call.
Similar to the phone calls mentioned above, you should also be wary of lenders who email you out of the blue and offer you a payday loan. Again, unless you emailed them first, you shouldn’t trust them. They could actually be trying to hack into your computer.
Fake Debt Collectors
You might also get a phone call from a fake debt collector. They’ll say that they’re collecting payment for a cash advance loan, and they may even threaten to seize your assets in retaliation.
This type of phone call can be scary, even if you know that you don’t have any collections notices or overdue bills. If you receive one, hang up. It’s a scam from someone trying to take your money.
How to Protect Yourself from Payday Loan Scams
The good news is that there are lots of steps you can take to protect yourself from these scams.
Here are some steps you can take to make sure you’re working with a reputable payday lender:
- Compare interest rates and loan terms from multiple lenders
- Look for online reviews of the lender before you apply
- Never accept offers through the phone or via email
- Make sure the lender is licensed and legally allowed to operate in your state
Keep these tips in mind so that, if you do decide to apply for a payday loan, you know you’re actually going to get the money you need.
What to Look for in a Payday Loan
Okay, you know what to avoid when you’re applying for a payday loan. But, what should you look for? How can you make sure you’re getting the best loan option possible?
Here are some tips to help you find the right payday lender for your needs:
- Ask if they have confidentiality and privacy policies in place to protect your information
- Check their website for a seal from the Community Financial Services Association (CFSA)
- Check their website for contact information like a physical address and phone number
- Avoid lending companies that act as a broker and don’t give you the money directly
- Make sure they’re registered with the Better Business Bureau
- Read through the loan agreement carefully and make sure you understand the penalties if you don’t repay the loan on time
- Make sure there aren’t any hidden fees
- Make sure the lender has good customer service support to answer all your questions
Once you’ve found the right lender, be sure to also keep these tips in mind. They’ll help to increase your chances of getting your loan application approved.
- Apply on a weekday and in the morning (this helps you ensure your application will be processed as quickly as possible)
- Look for lenders that offer same-day approval
- Make sure you meet the lender’s minimum criteria (income, employment history, credit score, etc.)
- Only apply for what you need (the less money you ask for, the greater your chances are of getting approved)
It’s important to have a good reason for borrowing the money, too. A vacation or a desperate need to get the new iPhone doesn’t count.
Get a Payday Loan Today
There are definitely payday loan scams out there to which you could fall victim.
But, there are also many reputable payday lenders who can help you get the money you need without getting you into more financial trouble.
If you’re interested in applying for a payday loan, consider working with us at Bonsai Finance. We’re a trustworthy online lender with lots of loan options available.
Apply for a loan with us today. You can also check out the Payday Loans section of our blog for more information and tips to increase your chances of getting approved.