Much have already been discussed over the years about payday loans. Today we’re going to uncover some myths that surround the payday loan industry and will try to make you aware of the facts.
But before that, we might want to understand how the payday industry actually operates, and the catches, if any.
Usually, a payday loan (also called as a cash advance loan) is a small loan (at least theoretically) that is paid off by the borrower’s next payday.
If you are going to borrow from a payday lender, first you have to show the lender some proof of your employment and earnings. Then, you need to give the lender a postdated check for the amount you want to borrow plus the interest you’ll accrue during the tenure. Now, the lender will give you the money, keep the check, and promise to hold it until the next payday.
If you fail the repay the loan by the payday, the lender will either deposit the check or try to reach to an agreement with you so that you can repay the next payday. However, such agreements usually come for an additional fee.
See also: Payday loan laws by state
The Federal Trade Commission and the Bureau of Consumer Protection provide us a great example to understand how much a payday loan could cost you. If you borrow $100 with a fee of $15 and roll the loan for once for another $15, you’ll pay a whooping 391% in interest for borrowing $100 a month.
The bitter reality is payday loans come in a range of $300 - $500 and with much higher fees.
What a payday lender can do to you if you fail to pay your payday loan? One Thing They Can’t Do Is Put You In Jail!
Just because a payday lender accepts a post dated check knowing that there is no money in the bank.
If you write someone a check knowing that there is no balance in your account, that is fraud, and you can be fined, and perhaps go to jail for committing such a crime.
On the contrary, .
However, you’re inviting troubles if you close the checking account just after writing a check. In such a case, the district attorney will pay extra attention towards your case.
Fortunately, most of the things that they’d threaten to do, they won’t. This is just because they are not legally authorized to do these things.
People, on rare occasions, visit payday lenders as their first borrowing source. If you knock the door of a payday lender, it’s a sign that your financial status is broke, and traditional lenders have denied you of funds.