7 Signs to Look For When Avoiding Predatory Payday Loans

For many people in need of some fast cash, payday loans are the best option available. However, this is not the case for everyone, as some lenders will try to cheat you out of your hard earned money. If you are thinking about borrowing from a payday lender, here are a few signs of predatory behavior you should be on the lookout for.

1. Short minimum loan term – Around 75% of payday loan borrowers are not able to fully repay their loan within the two week time period and are therefore obligated to apply for a loan “rollover” at additional cost.

2. One Time Payment – While most other loans allow you to pay off your loan amount gradually or in installments, payday loans do not. You have to pay the entire loan back plus whatever interest and fees you accrued once your two weeks is up.

3. High interest rates – The average cost of a payday loan is typically 400% APR (annual interest rate), if not higher.

4. Payday lenders rarely consider your ability to repay – They might try to get you to borrow the maximum amount allowed, without taking into consideration your credit history. So if you are unable to repay the loan, they collect on the multiple renewal fees.

5. Borrowing from multiple lenders at the same time – If you’re not careful, you could end up on the “debt treadmill,” or using a loan from one payday lender to pay off another. This endless cycle usually results in more renewal fees and no additional cash.

6. Post-dated check mechanism – If you are covering your payday loan with a deferred check and it bounces, you could be given multiple check charges and late fees. You could even be prosecuted for writing a “bad check.”

7. Mandatory arbitration clause – By forcing you to give up your right to sue your payday lender for abusive lending practices, this clause puts you at a significant disadvantage while your lender makes off unscathed.

If quick cash is what you need and a payday loan is your only option, be sure that you research the payday lender that you are contemplating borrowing from. If they show any of the aforementioned behaviors, you may want to consider finding someone else to finance your payday loan.