5 Symptoms of Payday Loan Scams

Payday loan scams are the reason payday lending is illegal in a number of states nationwide. While not all payday lenders are predatory, there are enough scams out there that you should be skeptical going into any potential cash advance against your paycheck. If any of these symptoms are present, you should walk away from the deal and seek alternatives. It is simply not worth getting involved with an unethical payday lender.

#1 No Credit Check Required

No-credit-check loans are ill-advised for both borrowers and lenders. Lenders are taking the risk of lending money to an individual who has a bad history of nonpayment. The reason the credit system was created was to protect lenders against this exact event; so, lenders who willingly enter into this dangerous territory are often engaged in subpar lending practices. For a borrower, no credit check likely means you will be treated as if you are a very high-risk borrower, even if you are not. All borrowers on no-credit-check loans are treated the same to account for the fact that some will be very risky and others less so. By assuming very high rates from all, lenders protect themselves from some exposure to default.

#2 No Background Check Required

Even if a lender offers a loan without a credit check, offering a loan with no background check at all is highly risky. In this case, the lender is taking the chance the borrower is ineligible to work in the United States, a convicted criminal or even on a list of individuals wanted by the federal government. The only types of lenders that make loans blindly without requesting information from the borrower at all are very high-risk lenders unconcerned with legal repercussions for their actions.

#3 No Interest

There is no such thing as a no-interest payday loan. Whenever a loan is advertised as "no-interest," the lender actually means "no interest for a period of time." After the introductory zero-interest period, the rates on the loan will go up. When the rates go up, it will be a very large amount. It is not uncommon for rates to rise to two or three times the national prime interest rate on a payday loan. Always question a no-interest policy to learn how the interest rate will truly be assessed in the future. 

#4 Undisclosed Fees

A lender is required to disclose all fees on a loan up front. This law applies in all 50 states, and it pertains to any interest, financing costs, prepayment penalties or other fees that may be applicable at some point in the future. It is not enough simply to disclose that other fees may be applicable. The lender must explicitly discuss how the fees will be assessed and the potential for high fees if there is one. You may not always know which fees are not being disclosed. However, if you ever find your lender has assessed an undisclosed fee against you, the contract may be invalid, and you can legally address the situation to remove yourself of obligation to repay the debt.

Related Articles