Payday loan companies offer the public a much-needed service by providing short-term loans to consumers trying to cope with unforeseen expenses or a financial crisis. While the vast majority of personal loan companies, whether existing as brick and mortar businesses or in cyberspace, are legitimate, the fast cash industry is, like all other industries, not immune to scam artists. Prospective borrowers should exercise particular caution when applying for payday loans online since the internet is an ideal venue for impostors to prey on individuals in desperate straits. This is because a phony payday loan company can easily 1) hide its authentic identity due to the anonymity assured by this electronic medium, 2) purchase a website for only a few dollars and set it up in a matter of hours, 3) dismantle the website and close up shop instantly, and 4) find new visitors to exploit on the world wide web. It is therefore advisable for consumers to be vigilant and be aware of the following potential hazards and common payday loan scams:
1. Deals that appear to be too good to be true
For starters, consumers should be wary of a cash advance company that offers loans at very low interest rates and undercuts the competition by a significant amount.
2. No contact information
If the personal loan company does not post a phone number or address on its website and/or requests more than the basic information, chances are it is a scam. Such schemes are typically aimed at stealing customers' identities by obtaining information such as credit card numbers, passport copies, and social security numbers.
3. Unsolicited enticements
A cash advance store that emails unsolicited loan offers to generate business is a suspect. It is most certainly a 'phishing' establishment that extracts applicants' personal information such as bank account numbers through what appears, at first glance, to be legitimate forms. Upon submitting the form, a message thanking customers for transmitting their information and notifying them that a representative will contact them shortly appears on the screen. The data obtained is then sold or used to access bank accounts or acquire credit cards.
4. Existence and history
Prospective borrowers should conduct comprehensive research to weed out illegitimate payday loan companies. To ensure that the payday loan store does in fact exist and is reputable, consumers should consult the Better Business Bureau (BBB). A company reliability report may be obtained from the BBB, either on the web or through its voice response system. Consumers may check with the BBB to find out whether any complaints have been lodged against the cash advance company. They may also run online searches to read any negative press about the establishment.
5. Exorbitant rates and short payment terms
High interest rates and unrealistically short loan terms should be a tip-off that the payday loan company is a fraud. A loan term that is of a short duration is designed to induce borrowers to repeatedly request extensions on the due date. These extensions are granted for a prohibitive fee. Oftentimes, many of these con artists sign up borrowers for extensions or rollovers without obtaining their consent beforehand. Borrowers, who still have an outstanding balance on their loan, are automatically charged a renewal fee.
6. Upfront fees
A legitimate cash advance store will never ask for a fee prior to wiring customers the cash. Another red flag is a payday lender who guarantees a loan to borrowers before determining whether or not they qualify. This holds particularly true for individuals with no credit, a bankruptcy petition on their credit report, or a poor credit rating. Borrowers should be on guard against bogus lenders who guarantee payday loans upon payment of an application fee, insurance, or a processing fee. Sometimes, the name of a legitimate company or a spin-off of a trusted name is employed. Some will provide customers with a 900 number to contact them, resulting in charges to the latter's phone bill. Another popular scheme is requesting payment through courier or overnight service or via wire transfer to avoid being traced. Therefore, borrowers should be cautious with electronic fund transfers and research the payday loan company prior to providing any bank account details. Instead of a direct deposit to their checking or savings account, consumers should opt for online payment methods such as PayPal and Western Union.