Of Payday Loan
pay day loan mn(also called a cash advance loan) is a short-term,unsecured
loan of a small quantum(typically up to $500) released by the Banker
without a credit check.It is designed to bridge the gap between
borrower's cash inflow and the pay days. The Bank provides money
to the customer and the customer pay back by auto debit to his/her
checking account on the payday designated by the customer. The cash
advance loan can also be in the form of cash provided against a
prearranged credit instrument like a credit card.
day loan mn are also popularly known as sub prime loans, small-dollar
loans, deferred deposit advances, direct deposit advance, refund
anticipation loans (for federal tax filers) etc. Payday lenders
typically operate through small stores or franchises, but large
financial service providers are also not rare to find. Some mainstream
banks offer a direct deposit advance scheme for customers whose
paychecks are deposited electronically from the employer's end,
at the end of every month. Some income tax preparation firms offer
"refund anticipation loans" to federal tax filers, after claiming
refund of tax, but before getting it. As of 2001, payday lending
is legal in Canada and in twenty-five states in the U.S.A. In the
other States of USA, a payday lender may affiliate with an out-of-state
chartered bank to conduct business.
lieu of the loan, the borrowers usually provides the lender with
a check or auto debit authorization for the loan amount plus finance
charges. The check is either post-dated (dated on the next payday
of the borrower); or the lender agrees to defer presenting the check
for payment until a future preagreed date , which is normally two
weeks or less. When the loan is due, the lender collects the loan
by the following modes: - depositing the check, debiting the borrower's
account, by having the borrower redeems the check with a cash payment.
If the borrower informs the lender that he or she does not have
the funds to repay the loan, the loan is often refinanced through
payment of an additional fee. If the borrower does not redeem the
check in cash and the loan is not refinanced, the lender normally
puts the check or debit authorization through the payment system.
If the borrower's deposit account has insufficient funds, the borrower
typically incurs a NSF charge on this account. If the check or the
debit is returned to the lender unpaid, the lender also may impose
a returned item fee plus collection charges on the loan.
& Dangers of Online Pay
Day Loan mn
companies are offering pay day loan
mn through Internet, whereby; just a few clicks can take you
out of your financial distresses.
of CFA with 100 Internet payday loan sites revealed that loans offered
generally ranged from $200 to $2,500, with $500 loans being the
most frequently offered. Finance charges ranged from $10 per $100
up to $30 per $100 borrowed. The rate charged most frequently was
$25 per $100, or 650% annual interest rate (APR) if the loan is
repaid within two weeks.
very much popular with the consumers nowadays, such loans has got
their inherent disadvantages and risks for cash-strapped consumers.
main disadvantage is the high finance costs. The Consumer Federation
of America (CFA) has warned consumers to exercise extreme caution
when using Internet payday loan sites, where loans due by the next
payday, can cost up to $30 per $100 borrowed and borrowers typically
face annual interest rates (APRs) of 650%. Internet payday loans
cost up to $30 per $100 borrowed and must be repaid or refinanced
by the borrower's next payday, according to Jean Ann Fox, CFA's
director of consumer protection. She further stated that if payday
were in two weeks, a $500 loan costs $150, and $650 would be electronically
withdrawn from the borrower's checking account.
Main risks involved are: -
Collection risks of check-based payday loans
Security risks of sending bank account numbers and Social Security
Numbers throgh internet to unknown lenders.
payday loans are marketed through e-mail, online search, paid ads,
and referrals. Typically, a consumer fills out an online application
form or faxes a completed application that requests personal information,
bank account numbers, Social Security Numbers and employer information.
Borrowers fax copies of a check, a recent bank statement, and signed
paperwork. The loan is directly deposited to the consumer's account
and loan payment or the finance charge is electronically withdrawn
on the borrower's next payday.
Risks of Unfavorable/Hidden Terms, Violation Of Terms, etc. -Many
surveyed lenders automatically renew loans by electronically withdrawing
the finance charge from the consumer's checking account every payday.
If the consumer fails to have enough funds in account to cover the
finance charge or repayment of the principal, both the payday lender
and the bank will impose insufficient funding fees. Only 38 sites
disclosed the annual interest rates for loans prior to customers
completing the application process, while 57 sites quoted the finance
charge. The most frequently posted APR was 652%, followed by 780%.
Although loans are due on the borrower's next payday, many surveyed
sites automatically renew the loan, withdrawing the finance charge
from the borrower's bank account and extending the loan for another
pay cycle. Sixty-five of the surveyed sites permit loan renewals
with no reduction in principal. At some lenders, consumers have
to take additional steps to actually repay the loan. After several
renewals, some lenders require borrowers to reduce the loan principal
with each renewal. Contracts from Internet payday lenders include
a range of one-sided terms, such as mandatory arbitration clauses,
agreements not to participate in class action lawsuits, and agreements
not to file for bankruptcy. Some lenders require applicants to agree
to keep their bank accounts open until loans are repaid. Others
ask for "voluntary" wage assignments even in states where wage assignments
are not legal.
While Opting For Online Payday Loans
advises consumers: -
Not to borrow money based on giving a post-dated paper check or
electronic access to a bank account as security.
Never to transmit bank account numbers, Social Security numbers
or other personal
Consumers should shop for lower cost credit, comparing both the
dollar finance charge and the penal interest rate to get the lowest
cost credit available.
For help with financial problems, consumers can seek credit counseling
help or legal assistance from experts.
Loans Your Way