The electronic age has arrived. Many consumers, investors, and entrepreneurs transact their business over the internet. An ordinary depositor can go online and open a webpage that contains information about his checking account. From this webpage, the depositor can make fund transfers, pay bills, and do a host of other financial transactions. The internet is a great tool for people who wanted to save time from waiting in line inside the bank premises. But the internet does not have the reputation of being the safest place. There are many fraudulent activities conducted over the internet. The internet can be a medium for criminal activities.

With this nature of the internet, a potential borrower may want to reconsider an application for a payday loan. He may want to hit the escape button or click “cancel” instead of choosing “ok” or “send application.” This is because there are many risks in obtaining payday loans from internet lenders. The two most documented consequences of acquiring a payday loan online are identity theft and loss of bank security.

Identity theft is a potential threat when obtaining payday loans using the internet. With online payday lenders, the borrower must fill out an online application form that demands personal information such as the social security number. This social security number should be given only to trusted institutions and not to anyone. A stranger can access much information about a person by simply using the social security number.

This means that the online payday lender may not be a real lender but a phishing site. Phishing is obtaining personal financial information by asking the internet surfer to fill out and then send forms. The real banks and credit unions have placed safety measures against phishing. Their web addresses contain the “https” in which the added letter “s” means a secure site. For many internet payday lenders, there are no measures taken to secure their site from hackers.

The loss of bank security is a grave consequence of using online payday loans. These internet payday lenders will always ask for the borrower’s account number and routing number. Their reason sounded legitimate. The account number and routing number will allow the internet payday lenders to deposit the amount being loaned from them into the borrower’s account. But, the disclosure of account numbers will also allow the lenders to withdraw from the borrower’s account. Thus, it is a possibility to end up with zero balance instead of obtaining the loaned amount.

The security measures placed by banks and credit unions become powerless when the borrowers give their consent to payday lenders to automatically renew the terms of the payday loan. This automatic renewal means that the lender can keep withdrawing the finance charge from the borrower’s checking account every payday. Unless the borrower contacts the lender and makes specific arrangements to pay the loaned amount in full, this withdrawal will continue and the debt is never paid. The automatic renewal implies that the borrower will need to take another route of action to pay off the debt.

Of course, the borrower can file a complaint against the payday lenders. But such complaints can be quite difficult for internet payday lenders because they rarely reveal their actual location. Some internet payday lenders even claim that their office is outside the country. Nevertheless, the Federal Trade Commission assures that any complaint filed against lenders must be filed in the state where the borrower lives. The payday loan is also subject to the laws of the borrower’s state.

In the United States, the lending industry is a thriving business because Americans enjoy a nationwide financially secure system. There is stock lending, mortgage lending, and business lending. There is a strong inclination to borrow because lending provides the resources that Americans need to invest, to expand their businesses and to obtain greater financial security. Lending is a reliable and effective financial tool.

However, this once trusted method of expanding financial security is threatened by the increase of subprime lending. In subprime lending, the loaned amounts are too huge for the borrowers to settle within a reasonable time or the borrowers are not checked to determine if they have the capacity to pay the loaned amount. Most subprime lending entails high interests that push a borrower into greater debt.

The whole set up of payday loans is a type of subprime lending. The loan applicants are allowed to borrow amounts of money that may be too large to pay off. For example, a loan applicant who makes about $4,000 a month is allowed to borrow as much as $2,500. Obviously, with all other household expenses, this loaned amount could not be settled within two weeks. The payday loan contract seems to deliberately keep the unsuspecting borrower in debt.

The bad news is that payday loans are too easy to obtain. The online forms of payday lenders are easy to fill out. Replies from the payday lenders are given within 24 hours, and the whole loan agreement is carried out in less than two days. The convenience that payday loans offer has attracted too many Americans.

The total amount of loans obtained from payday lenders has risen dramatically throughout the years. The Center for Responsible Lending (CRL) reports that in the last few years, the loaned amounts from payday loans reach about 4 billion dollars every year.

This huge debt is not just the actual loaned amount. It also includes the loan fees or the interest. Payday lenders demand interests that could be as high as 800% annually. Unfortunately, this high APR or annual percentage rate is not obvious because payday lenders advertise the interest rate in terms of actual amounts, such as: “an interest of $20 for every $100 borrowed.” This $20 interest is not for one month or for one year. It is for two weeks. Therefore, in one month, the interest is $40. And in 3 months, the interest becomes higher than the loaned amount.

Some people may believe that paying $20 for interest is not a big thing. The reality is that the typical borrower does not obtain a $100 loan. The minimum amount loaned is usually $200 and it can be as high as $2,500. According to the research of Center for Responsible Lending (CRL), the typical loan is $500. This means that in two weeks, a borrower must pay an interest of $100 for a $500 loan. This is the reason why through payday loans, many American families are acquiring debts with unreasonably high interests. And this is why payday loans are dragging many Americans into billions worth of debt.

A payday loan is always advertised as the quick and easy solution to a financial predicament. The payday lenders pose themselves as financing companies that can rescue a person from a financial crisis. The loan is short-term and the borrower is led to believe that the payday lender’s examination of his paycheck has been found to be sufficient to cover the loan. The loan application, after all, has been approved. The actual truth paints an entirely different story.

According to a research study conducted by the Center for Responsible Lending, there are three major trends that emerged about payday loans. First, the bulk of income that payday lenders obtain (about 90%) comes from the loan fees that they charge from the borrowers. The CRL observed that for an average loan of $325, the borrower ends up paying $793. How can this be possible when the advertised loan fee is only $15 to $20 for every $100 borrowed?

The typical amount loaned is not $100 but $500, which means that the loan fee is $100. Then, this loan fee is good only for two weeks because this time period is the term of the loan. After two weeks, if the borrower cannot pay the total amount ($600 for the $500 loan), the payday loan is rolled over. The loan is extended and the borrower pays only $100. In a month, the borrower had paid $200 for a $500 loan. If the loan is extended over and over again, the payday lenders earn a steady stream of $200 from each borrower and the borrower still owes them money. This implies that payday lenders are pleased to have borrowers who could not settle their debts.

The second alarming trend that the CRL research revealed is that the entire cost that American families shoulder each year to pay the loan fees of payday lenders totals to about $4.2 billion. It must be emphasized that this estimated amount covers the loans of registered payday lenders. There are other internet payday lenders that never reveal the physical location of their offices and this makes them difficult to track down. The total cost due to payday loans could be higher than the CRL’s estimated amount.

And the third disquieting trend that the CRL research found is that the states which declared payday loans illegal, are actually helping the citizens save about $1.4 billion. This is a lot of money saved from unscrupulous payday lenders but it appears small when compared to the $4.2 billion spent on payday loans. This is due to internet payday loans. The payday lenders who conduct their businesses online may have borrowers from states that banned payday loans.

Based on the actual procedures of payday lending and the excessive interests and fees out of payday loans, the payday lenders can be considered as financial predators. They do not exist to provide emergency help for people who needed money. The payday lenders exist to worsen the financial situation of these people. Similar to predatory sharks that attack when they smell blood, payday lenders go after people who are already in financial trouble.

One payday loan already means an unsettling financial situation. It already means having the obligation to pay high interest rates, as well as dealing with a payday lender who holds far too much information about the borrower. The logic and judgment used to defend the acquisition of one payday loan is already flawed, but having more than one payday loan is worse. With multiple payday loans, the borrower is facing a menacing situation.

To demonstrate, here is how a payday loan typically works. The potential borrower will fill out the application form provided by the payday lender. For internet lenders, the application form is found online and can be filled out within a few minutes. At the same time, the potential borrower will send scanned copies of his employment ID showing his photograph and his paycheck.

The payday lender will then transmit a payday loan contract for the borrower to sign. This signed contract is sent back to the payday lender along with a post-dated check. The date is usually two weeks from the agreed date that the loan is received and the amount is the total of the loan and the loan fee. The lenders often refer to the loan as the “amount financed” and the loan fee as the “finance charge.” This loan fee is actually the interest for the loan.

Once the signed agreement and the post-dated check are received, the payday lender releases the loaned amount. Then, in two weeks, the post-dated check is deposited. Some payday lenders give the borrowers a chance to retrieve the post-dated check if the borrower can pay the equivalent amount before the two weeks are up.

All these sound simple and straightforward. It can be done over and over again, leading to multiple payday loans. It can be a relatively brief transaction between borrower and lender except for one important consideration. What happens if the borrower could not pay the loaned amount after two weeks?

The payday lender may still deposit the check and with insufficient funds in the account, the borrower is faced with financial problems coming from two directions: from the bank which charges a penalty and from the payday lender who includes court costs for the bouncing check.

Usually, however, the payday lenders do not immediately seek the courts to make the borrower pay the loaned amount. Instead, many payday lenders give the option of a roll-over in which the borrower extends the duration of the debt, pays the finance charge and promises to pay the loaned amount in another two weeks. This seems a generous option on the part of payday lenders, except for the fact that the debt remains and the borrower continues to pay the interest only. After a few months, the total interest paid becomes higher than the loaned amount.

What happens when there are multiple payday loans that take away a continuous stream of money from the bank account in the name of finance charge? The total of these finance charges could pay off one payday loan. At this point, the borrower with multiple payday loans finds himself in a dire situation and he will be facing bankruptcy.

There is no need of any kind of property usage or custody of the property as a warranty for the issuance of loan, known as unsecured loan. There is a need of financial consultant to have good personal finance advice in order to escape from any kind of risky situation, bankruptcy. The online loan is taken by the potential borrowers with the charge of high interest rates. The availability of quotes for car finance loans is provided by the major corporate in the banking and financing sectors. Some banking loans are charged with very high interest rates on the borrowers in accordance with the ratio of amount of money, issued by the lenders. There are different rules and policies, introduced by the loan companies for credit card debt relief.

Should you get a payday loan? It is not the best financial decision. In fact, it can be the worst financial mistake that a person can ever make. Before considering a payday loan, a person must deal with several critical questions about his finances and the possible consequences of incurring a high-interest debt. Below are some of these critical questions. These questions are not only applicable for payday loans but also for all other kinds of loans.

All loan contracts have provisions for the possibility that the borrower could not pay on time. Usually, the borrower takes the steps to inform the loan company that the debt could not be settled and that the borrower and the lender must revise the original loan contract. The lender is assumed to want the loaned money back and the lender will help the borrower tailor a new agreement that will be suited to the financial capacity of the borrower.

In payday loans, the above process is not followed. The payday loan contract provides for an extension of the debt. The borrower who could not pay off the loaned amount during payday is given the option of rolling over. But this extension of the payday loan is not a free service. In roll over, the borrower is obligated to pay only the interest. In fact, the borrower may keep paying the interest for several months. This may sound a great deal for borrowers until the interests paid every payday are summed up. The total interest paid is probably double or triple the amount of the principal.

Before getting a payday loan, it is prudent to compare the interest rates of other loans. The comparison is in terms of APR or annual percentage rate. The APR compares the interest paid in one year with the loaned amount. Mortgage loans and home equity loans can have APRs between 5 to 10 percent. Car loans have APRs between 6 to 12 %. Credit card APRs are between 13 to 30%. Obviously, the APR of a credit card is higher than the mortgage loan.

The interest on payday loans, which is usually $25 for every $100 within two weeks, appears to be manageable and even acceptable. But when it is translated as APR, the interest on payday loans is between 650 to 800%. This means that within a year, if the payday loan is not settled, the borrower may end up paying 8 times more than the amount loaned.

Another thing to consider before getting a payday loan is the nature of the need for money. Is it really an emergency? Or is it just to buy something that can be considered trivial by others? Incurring a debt to simply buy clothes is irrational. Getting a payday loan so that there is money to buy food during a party is almost absurd. And the most important critical question to answer is the following.

An employee always has a general idea of the actual amount that he receives every payday. Thus, it is logical to assume that this employee will create a budget that will be within his means. That is, the paycheck should cover all household expenses. But, many employees always arrive at a shortage of money. There is also no money set aside for emergencies. What are the reasons for this situation? It could be that the expenses are larger than the paycheck. It could be that the employee does not know good money management. In such financial dilemmas, a payday loan is not the answer.

In answering the above critical questions, a person realizes that the payday loan is not an option at all. Payday loans are debt traps that must be avoided at all costs.