Distinguishing Online Payday Loan Scams from the Real Thing

Online payday loans are very high risk for the borrower. In many states, payday loan practices are illegal as they are considered predatory in nature. To get around this, many lenders set up shop online. This means you will be dealing with lenders who do not meet many of the legal criteria applied to financial services companies. As such, you need to be extremely careful.

Avoid Faxless Loans

Faxless loans are essentially loan offers that require no actual paper trail. These are popular for payday borrowers who want to assure no agency or other person finds out about the loan. Payday loans are an option of last resort; if your mortgage company or even employer finds out about the issue, you may be subject to some uncomfortable questions. Even though it is attractive to retain an essentially anonymous loan, this option largely means the lender is not truly considering whether they should or should not extend the loan. This means they will be more likely to give you irresponsibly high limits. 

Look for Credit Checks

Most payday lenders will not require lengthy background or credit checks. This works well for people who know they are working with a substandard lender and are in fact looking for that option. However, if you want to know you are working with a more legitimate lender, you should expect at least a simple background check, income verification or credit report. Payday lenders will extend loans to people who are not otherwise credit worthy. That being said, they should at least require you to be employed in order to issue the loan. They should also want to assure you are not using an alternate identity for the loan, and a credit check will accomplish this. 

Read Fine Details

The most obvious advice most people receive before taking a loan is to read the fine print. Unfortunately, too few people follow this advice with a payday loan. The fine print is where you will learn about late payment penalties and loan modifications. Interest rate is only a portion of the cost of a payday loan. The unknown fees can add hundreds of dollars on to your payment requirements, and they can throw you into a cycle of debt.  A quality lender will apply high interest rates to any cash advance. However, they will be less likely to charge inordinate fees or provide for no grace period at all.

Locate Contact Details

Whenever you are considering submitting personal information over the Internet, it is essential to know the contact details for the company. You should look for a "contact us" button. Here, you should be able to locate a physical address and phone number. Call the phone number to assure the company actually operates this site. Next, look up the address in the Yellow Pages or another source. You may also look up the URL on a site like "WhoIs.com," which lets you know who the legal owner of a website truly is. If any of these items is not valid, then you may be looking at a payday scam.


How do you report payday loan scams?

Report payday loan scams to the Department of Consumer Affairs in your state. You may also report the lender to the federal Department of Consumer Affairs. However, since lending laws are set at the state level, it makes the most sense to have the state department consider the violations at hand. Submit your claim in writing, and keep a copy of your complaint for your personal records. You should receive a response from the department verifying receipt of your report and an ongoing investigation within a few weeks. 

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