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Be Wary of Online Payday Lenders

American consumers have taken a real economic hit over the past several years. High unemployment, stagnant wages, and job insecurity are still with us and prices for consumer goods such as food and gas continue to rise. Along with facing these financial obstacles, many people have also been shut out from traditional lending sources because of tightened credit requirements.

Due to these circumstances, the number of individuals who have turned to online payday lenders for short-term loans has sky-rocketed. If you are considering using a payday advance loan to help you through a financial rough spot, the Federal Trade Commission (FTC) urges you to use extreme caution when dealing with this type of lender.

Several online payday loan lenders have recently been sued by the FTC for violating Federal statutes. These lenders were charged with lying about the cost of their loans. They were also alleged to have required borrowers to give the lenders access to their bank accounts for electronic payment withdrawals and some even threatened to sue borrowers for repayment of their loans or have them arrested.

As an example, an individual would borrow $300 with a one-time fee of $90 for a total of $390 to be repaid in one lump sum at the end of two weeks. However, the lender would actually begin a series of automatic withdrawals almost immediately and would charge a $90 fee each time. At the end of the two week repayment period the borrower would have paid $975 instead of the agreed upon $390!

Payday loans are expensive. They come with much higher interest rates than loans offered by banks and credit unions and because they are classified as "short-term", the usual repayment time is just two weeks. If you do decide to use a payday loan, be sure to research the many companies doing business online. You can also verify if a payday lender is licensed to operate in your state by contacting your specific state's Office of Consumer Affairs.

Other Options

Before you commit to a payday loan, there are other viable options which you may want to consider and which do not pose as much risk.

  • Consider a small personal loan from a credit union or bank. If you have a financial relationship with a specific bank or credit union, take advantage of it and speak with a loan officer. Many traditional lenders are now offering short-term loans for small amounts to consumers.
  • Ask for an advance on your salary. Contact your employer and see if this is possible. If you only need a small amount of cash to see you through, this may be a good option.
  • Ask a trusted friend or relative if they can help. This can be a tricky proposition and you will have to weigh the effect this will have on your friendship. Be prepared to sign a legal agreement. It's important to keep everything strictly business-like.
  • Sell everything you no longer want or need. Nearly everyone has "treasures" stored in their homes that are just taking up space and collecting dust. Sell them on EBay or Craig's List. Have a yard sale. If you have gold or silver jewelry you haven't worn in years, take it to one of the many companies that buy used jewelry. This can give you the money you need without having to take on more debt.

Finally, if you don't live on a budget now is the time to start. It's as simple as getting two pieces of paper and writing down your total monthly income and your total monthly expenses. Make cuts everywhere you can and put the money you save into an emergency savings fund. Then when the next unexpected financial event occurs, you will be ready!