The Federal Trade Commission has asked the public to be alert regarding the payday loan fiasco. More and more companies, springing up out of nowhere are proclaiming to provide users with payday loan opportunities, but at a high cost, sometimes causing people to get into severe debt issues, in pursue of some quick cash.
Payday loans are not the exact amount of money that you request for, instead an added amount of fee is also imposed on to the loan. Each time you borrow more money, the fee increases, with every $50 or$100 borrowed.
Thus you would end up paying more fee money rather than the actual debt money.
This practice is gradually becoming a profiting business for most lenders and a problem for people who are attracted to the option of getting quick cash. This method could be used for emergency situations where you would pay with your “pay day check” later, however, for a proper loaning system, you should try various other alternatives.
Most payday borrowers are so busy with their repayment that it could make them loose their bank accounts because of overdrafts and probably end up being bankrupt. Though they promise at the moment cash, it is filled with expensive credit and hidden charges along with triple digit interest rates.
There are two types of payday loans, both with their own set of problems. The first type is the typical payday loan that requires a person to repay back in two to four weeks, and if in case by the end of the time, the borrower has no cash to pay, he will have to take another debt to pay it off. The new debt obviously has a fee of its own, doubled up most of the time. To stop this trap a law has been passed for lenders to make the repayment of debt interest free after 35 days.
The second type of loan is the installment loan, which again is a trick to trap customers into paying triple more than their original debt value. An installment loan is provided to you by the name of “customer loan” . In an installment loan when a consumer takes out an installment loan, he is required to make payments for a period of six months to a year.
Installment loan is a branch of payday loan, but because they last more than 120 days they are not forced to follow the interest free plan for traditional loans. What happens during an installment loan is that when lenders sell you an installment loan for a specific time period they enforce you to make the repayments in installments.
When the installment is done, the lender traps the user with the “renewal trap”, meaning the lender will praise you for your timely repayment and will offer an incentive. the incentive will be an award to use extra cash and what happens next is that the the new loan will be rolled onto the original loan and hence more debts, more problems. Thus it is advised to stay as far away from payday loans as you can.