According to the consumer federation of America, CFA, a survey of one hundred Internet payday loan sites, show many high risks to consumers who borrow money by providing personal financial information over the Internet.  

Here’s what can happen.  You need cash to pay your rent and your bank account is shy $300.  As an option, you jump online and apply for a quick payday loan. The idea is appealing, you only need to provide checking account information and proof of employment and bam!  The money is in your account that very same day. Your rent is paid, you avoid a mar on your credit report and you don’t have to face the scowling landlord.

Two weeks later the lender takes the money you borrowed, plus fees and interest, out of your account.  You’re done right? You’ve saved your hide. Sure it cost you an extra $120 in fees and interest but it was worth the money to make sure your rent was paid on time.

Two weeks later you may notice there’s been another deposit in your account for $300.  Hmmm…you scratch your head and try to contact the lender. No luck. Two weeks after the deposit was made, a withdrawal is made.  Again, for the $300 and the $120 in fees and interest. Again, you try to contact the lender…no luck. They don’t answer their phone or email messages.  

This scenario has happened to many folks, which doesn’t necessarily make online payday loans a scam but it does mean you have to read the fine print.  Make sure you’re not entering into a contract with regular automatic loans, deposits and withdrawals.

Another scenario that happens all to often is that the funds are not available for withdrawal when the terms of the loan are up.  This is due to the fact that the terms of the loan are often very short, less than two weeks, and the fees are very high. If the lender is unable to withdraw their money or cash the check you wrote to cover the loan, then they will charge you insufficient funds fees, the bank will charge you those fees too, and the lender will charge you a fee to extend the length of your loan.  One small loan can turn into hundreds of dollars in fees and interest. The CFA estimates that payday loan borrowers typically face annual interest rates (APRs) of 650%.

Always ask yourself, if you don’t have the money today, will you have the money and the interest and fees in a week and will it be available in your bank account.  If the answer is no, find another way to come up with the money. Borrow from friends or family, take out a small personal loan, get a cash advance from your credit card or go talk to your landlord or the person or company you owe money to and see if you can create a payment plan.