Online loans are widely promoted today because they offer quick and easy means to obtain instant cash. Indeed, you shouldn’t jump in on the hype right away. There are several fly-by-night online loan companies that create fictitious company names to lure customers in need of money. Therefore, check the credibility of each online loan company to avoid the traps.
1. Online loans offered by unknown companies can be traps to keep you in debt indefinitely. Such companies are most likely not state licensed and they don’t conform to the state’s guidelines when it comes to interest rates and over-all guidelines.
According to the Consumer Federation of America fraudulent online loan companies charge annual interest rates of up to 650%. That’s equivalent to $30 per $100 borrowed. With such interest rates it is not surprising if borrowers can be trapped and thus forced to extend the term and succumb to new and additional fees. Therefore, before you sign up for any company, you have to be aware of the loan interest rate as well as other fees that may apply.
2. The bad companies are easy to spot. They send unsolicited marketing emails, otherwise known as spam. In the emails you will be requested to complete an online application form. You will be required to include your personal and financial information like your SSN, bank account information, and so on. Licensed companies will also request for these pieces of information but on a secured SSL server, not via email.
3. The online loans work so that companies withdraw the amount borrowed, plus interest, on your next payday. If you decide to take a loan, you have to accept this condition. However, there are a good number of unserious companies who don’t wait for your next payday. They just go in and do the transaction. As a result, you end up with overdraft fees from your bank.
To combat this disadvantage, choose an online loan company that waits for a confirmation from you before any withdrawal is made. Legitimate companies require a form submitted to them 24 hours before your next payday.
4. Lastly, some fly-by-night online loan companies automatically renew your loan. This kind of companies will withdraw the finance charge from your bank account and extend the loan for another cycle. Fraudulent online loan companies will keep doing this until you ask them to stop. Hence, you end up locked in debt for long periods of time until you figure out what’s going on.
Choosing the right online loan company requires thorough research and plenty of time. Do not rush. You have to know all about the company to make sure that you will not experience any of the disadvantages noted above.