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Payday loans are notoriously expensive and difficult to pay off, and they’ve become easier to get thanks to their prevalence online. What does that mean for the consumer who seeks out these loans due to a lack of access to more affordable credit? Read on to find out.

What You Need to Know About Payday Loans Online

Regardless of the negative reputation payday loans have, if you’re in need of a short-term loan and don’t have a credit card or the credit to obtain a loan through a bank, you might feel you have no choice. If that’s the case, here’s some information you should know about payday loans online.

Payday Loans Online Can Be Faster … And Slower

If you go to a payday lender in person, you can often walk out with the cash you need the same day. However, you’ll have to gather the necessary paperwork (including a post-dated check) and go to the lender. Some might even require you to come back to get your post-dated check back (minus the fees that will be charged for the transaction).

In that sense, online payday loans can be faster to process. You can apply from the comfort of your own home, and the transaction will likely occur via ACH transfer. That said, because the transactions happen via ACH, you might have to wait one business day for the funds to show up in your bank account.

Payday Loans Online Could Lead to the Sale of Your Information

With payday loans online, there may be times you think you’re going through a direct lender, only to find out it’s a payday loan broker. In that case, the broker submits your financial information to multiple lenders.

Although this might not be inherently bad (it’s always important to shop around for the best rates you can get no matter what type of loan it is), it could lead to the sale of your information to third parties without you realizing it. What’s more, the Federal Trade Commission (FTC) warns that you don’t even have to complete the loan application for your information to get out there:

“Even if you never hit ‘Submit’ to complete the transaction, your information can be captured through keystroke logging — a program used to see and store everything you enter on an application.”

If you’re proceeding with a payday loan online, it’s important to research the company you want to work with. Besides finding out if they’re a direct lender or broker, it’s also important to find out where they operate. Some online payday lenders might not operate in your state, which would mean they don’t have to follow your state’s lending restrictions.

It Might Be Harder to Spot a Scam Online

When you’re doing business online and giving out sensitive information such as your bank account number, you really want to know who you’re working with. That might not always be easy to do with online payday lenders. In the same article on online payday loans, the FTC warns about scams that have happened in the past that required them to take legal action.

So, what did those lenders do? One charge was that the lenders threatened customers with lawsuits or arrest for nonpayment. Another is that they didn’t properly disclose the fees of the loans. More specifically, they told their customers there’d be one withdrawal and one finance fee for that withdrawal, when in fact they made multiple withdrawals and charged one fee for each.

Go back a few more years to 2014, and the FTC even had to sue a company that posed as a payday lender. What they really were was a company trying to collect financial information and enroll unsuspecting customers into a membership for an online mall.

In short, it’s important to do your research on online payday lenders before taking action with them to make sure they’re not engaging in such scams.

The Cost of Payday Loans

Payday loans are expensive no matter where you obtain them. The Center for Responsible Lending created a map showing the average interest rate of payday loans across the country, broken down by state.

On the low end, Oregon comes in with an average of 154 percent, while Ohio sits on the highest end with an average of 677 percent. Compare that to the average credit card interest rate of 17 to 24 percent (as reported by U.S. News), and you can quickly see how much more expensive payday loans can be.

Because of this, the FTC recommends seeking out the lowest interest rate credit you can get. The FTC also suggests local credit union loans as a potentially cheaper option. Unlike national banks, credit unions are sometimes more willing to work with customers whose credit needs work, should that customer establish a solid relationship with them.

Need a personal loan? Dispute any credit report errors before you apply with Upturn Credit’s FREE tool.

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