Internet payday loans are easy to locate using any kind of search engine. Payday lenders have their ads placed in many other sites and they obtain people’s emails to send their advertising pitch to numerous inboxes. Internet payday loans are hyped as the convenient and fast solution to a financial shortage. But this is the exact opposite. Payday loans lead to a worse financial situation. This can be immediately seen if attention is paid to the contracts that internet payday lenders give to their borrowers. Here are typical features of a payday loan contract.

One feature of a payday loan contract is called the arbitration clause. It is a legalistic term but it simply means that if there are disputes between the two parties making the contract, this dispute must be settled outside the court, in a pre-chosen state or nation, and before a pre-chosen group of people who will make a decision. This means that if the borrower wants to challenge the actions of the payday lender, this will be discussed and decided upon in a place that could be hundreds of miles away from the location of the borrower. The laws of the state where the payday company wants to hold the arbitration would be different from the laws of the borrower’s state. Worse, the arbitration could be held in another country. The expenses alone would deter the borrower from pursuing his issues against the payday lender.

Then, the arbitration procedure can be held in front of an organization or a group which could be biased in favor of the payday lender. A dispute is usually best settled in court where the chances of a fair decision are high. But with the arbitration clause, it could be held before people who may have already decided to protect the interests of the payday lender.

Another feature of a payday loan contract is a statement, which refers to the borrower’s agreement to never be involved in a class action suit against the payday lender. Many borrowers often disregard this statement believing that there will be no reason to file charges against the payday loan company. Tragically, there are many possible reasons. For example, some internet payday loans are automatically renewed every two weeks even without communication with the client. This means that the payday lender immediately withdraws the finance charge from the borrower’s bank account. To give a stranger such easy access to a personal checking account should be disturbing enough.

And still another feature of a payday loan contract is the agreement on the part of the borrower to never proclaim bankruptcy. In many respects, claiming bankruptcy is bad news because the borrower’s credit history is smeared and the borrower will have difficulty obtaining loans. But bankruptcy is also a financial move that an honest person can take when he finds himself unable to meet all his financial obligations. In the payday loan contract, bankruptcy does not become an option. This means that the payday lender can still make electronic withdrawals for the finance charges because the borrower’s account is obligated to remain open. With insufficient funds, both the bank and the payday lender can charge penalties.

Clearly, the contracts of internet payday loans are one-sided and always in favor of the lender. The borrower must realize that he faces many financial, security, and legal risks each time he obtains a payday loan and signs that dubious contract.