I was once involved in a consumer watchdog project on payday loan establishments. My job was to call several chains to check on what their rates actually were and how they were portraying payday loans to customers.
This is how the loans work:
- The customer brings in their paystub and checking account info.
- They provide their id as well as several personal references.
- Based on their income and need, a loan is granted. Fees vary by lender. In one instance, there was no fee for the first $150 for a first time customer, but in the end for a $300 loan, it worked out to about $26.00. It would be higher if this wasn’t your first loan. 10-30%!
- A personal check is left as collateral. (Online services don’t require this.)
There are several safeguards involved. The first is that some states require a small database fee (typically less than a dollar). This helps maintain a database not just for the particular chain, but statewide for all payday loan establishments to ensure a customer is not taking out more than one loan at a time. It would seem to protect just the business from someone who will default, but it actually is part of a regulation to prevent predatory lenders from selling an individual on more loans than they can handle.
Now that one can apply for payday loans online, the stigma of walking in is removed. But be careful to not be tempted if you don’t truly need one and are just trying to cover a luxury or non-vital expense. It is far better to put even 10% aside a week to build a fund for emergencies, rather than be subjected to the immediate high interest. Even $5.00 a week.
Before you apply for a payday loan online, think long and hard. There may be another way, such as Care Credit if you are trying to pay for emergency care for your dog, or a trip to the food pantry for your family. Also, call your creditors and try to negotiate.
The one decent thing about the loans are that they provide an alternative for people that would normally perhaps gamble to get an advance or do something illegal, which sets them bigger in the hole.