Advice for Consumers

Borrowing money is a serious matter and should be approached with caution and care. The economic slowdown of the past few years, together with job layoffs and rising consumer prices, have caused an upswing in the number of people looking for extra cash to get through financially tough times. Obviously each person's situation is different. But if you are one of the millions of Americans who finds themselves needing a loan, we offer the following suggestions to read and consider before making this important financial decision.

Avoid Quick Cash Loans

Quick cash loans are an increasingly popular choice for people needing immediate funds with very minimal requirements to qualify. But they differ greatly from a traditional bank or credit union consumer loan. The average repayment period is two weeks from when you receive your funds. If you cannot fully repay the loan at that time, the additional interest payments and fees can be extremely high. Other loan options should be considered before committing to a quick cash loan.

Beware of Online Lending Risks

There are numerous risks involved when borrowing money from an online lender. Usually these types of loans carry a much higher interest rate than a conventional loan and also have to be repaid within a shorter period of time. Privacy and security concerns head the list of risks associated with internet lending. The paperwork is all handled electronically and you are required to give personal and bank account information to the online lender. If websites are unsecured, identity theft is a serious possibility. Be confident you are dealing with a legitimate lender before giving any personal information online.

Seek Credit Counseling

For consumers who are having serious financial problems, credit counseling from a reputable agency can offer valuable advice on monetary matters, creating a budget, and getting out of debt. Some offer debt management plans (debt consolidations) but these should be looked at cautiously as many times they are ineffective in solving overwhelming debt. Many of the ideas and suggestions credit counselors offer to their clients are readily available online, such as budget planning and learning how to save. Check out all your options, including contacting your creditors directly, before signing any counseling agreement.

Cope & Don't Borrow More

The stress caused by financial problems can be enormous. But borrowing money, which in effect is taking on more debt, is not always the best answer. If you have fallen behind with your mortgage payment, or car payment, or any other creditors you owe, the most important thing to do is contact them immediately and explain the situation. Avoiding the problem will only make it worse. Most creditors will work with you to arrange a repayment schedule that you can handle. Also, consider ways to get extra cash that don't involve borrowing money. A garage sale, working additional hours if possible, an advance on your paycheck- all of these can add to your monthly income without causing you to take out a new loan.

Find Alternatives to Payday Loans

Before committing to a cash advance type loan, consider the alternatives available. Friends and family members may be willing and able to loan you money. It's best to have a written, legal agreement so that there are no problems later on. If you have a bank or credit union account, apply for a small consumer loan at your financial institution. Small loan companies also exist and while the interest rates are usually higher than those offered by a bank, the rates are still better than those associated with a payday loan. Shop around and investigate all your options before making a final decision.

Don't Fall into Debt Trap

When you desperately need cash to get through a tough financial situation, a payday loan can seem like a quick and easy solution. But it's important to understand the risks that come with these loans. If you find that you can't fully repay the loan at the end of the two week period, it then becomes necessary to rollover the loan for another two weeks- with additional fees and penalties attached. 14 days isn't a lot of time and if you consistently have to renew the loan, you can end up paying an enormous amount of interest fees. It is a very hard cycle of debt to break!

Beware of Guaranteed Approval Loans

Nothing in life is guaranteed - If you’ve been turned down by a credit card or bank, your chances of getting approved for a loan are already much lower. Find out why the word “guarantee” is never used.

Watch Your Bank Account

Payday loans are based on either checks or debits and the lender accesses the borrower's account to collect the money that is owed. When you apply for a payday loan, you give your bank account information to the lender. It is very important that you closely monitor your account to make sure the funds are available when your loan is due and payable. You should never write a check, post-dated or otherwise, if you do not have the funds in your account to cover it. Make sure you read and understand all of the terms and information in your loan agreement before signing. If you have questions, ask them before you sign on the dotted line (or electronically click the "ok" sign).

Carefuly Review Lenders Terms and Conditions

A payday loan is a great service to solve your short-term financial emergencies. However, if you are stuck dealing with a shady lender, you must be armed with the knowledge of your legal rights. Know your rights before signing and therefore entering into a loan agreement.

Electronic Payment Consumer Rights

Federal law and the loan industry give consumers certain rights in regard to online lending. One of the most significant ones allows consumers to stop payday lenders from electronically debiting their bank accounts for loan payments. It's important to note that stopping this electronic debit does not satisfy the terms of the loan agreement or settle the debt owed. Individuals considering a payday loan should thoroughly read and understand all of the repayment terms included in the loan agreement and be aware of their rights and responsibilities as a borrower.

Punishment for not Paying a Payday Loan

If you fail to repay the loan in full by the agreed upon date, learn more about what the penalties and implications are.

Payday Glossary