If you’re desperately short on cash, you may be thinking about a payday loan. You may also have a lingering question on your mind: Are payday loans a scam?
Let’s take a look at why payday loans have a less-than-stellar reputation, as well as which scams you should watch out for. Finally, we’ll discuss how you can get a legitimate short term loan.
Not all payday loans are scams — there are legitimate lenders that will extend credit to those in need.
However, payday loans can be extremely expensive, and this may be why they’ve acquired reputations for being scams. You can potentially pay up to £24 in interest when borrowing £100 for 30 days, which calculates to a four-figure APR.
Payday loans are also notorious for trapping consumers in endless debt. Because these loans are so expensive, borrowers often have trouble paying them off, often causing them to take out more payday loans to pay off their debts.
All this said, there are payday loan schemes that really are scams. To protect yourself, you’ll want to know what to watch out for.
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
Like many financial industries, the payday loan industry has scammers that prey on desperate people. Most scams revolve around consumers unwittingly giving out sensitive information or sending money to unscrupulous individuals.
Here are three payday loan scams and how to avoid them:
A company posing a lender will guarantee you a loan if you pay an upfront fee first. The company may ask for the money to be sent as a wire transfer, money order, gift card or some other form that’ll be hard for you to get back once sent. After the company receives the upfront fee, they’ll disappear without giving you the loan they promised.
To avoid this scam, don’t give any money to a lender in order to get a loan. Legitimate lenders do not charge fees before you’re approved for a loan. Any one-time fees for establishing the loan should only be charged after you’re approved and have received your funds. Also, be wary of guaranteed offers. A legitimate lender cannot guarantee a loan without seeing your full application.
In one common payday loan scam, someone will call you claiming to be a debt collector. They may threaten you with legal action or arrest if you don’t pay. The caller may also have your personal details, including your bank account number. Having this information doesn’t mean the call is legitimate. More likely, it means that someone else sold your information to a third party.
Don’t give out any personal information over unsolicited calls, and don’t send money to anybody claiming to be a payday loan collector. If you do currently have a loan, call your lender directly to verify the terms of repayment.
In some scams, you’re asked to fill out an online form to receive a payday loan. After you’ve entered your bank account information, the operators of the website won’t actually extend a loan to you. Instead, they’ll enroll you into some type of membership program that will take money from your bank account.
To avoid falling prey to this type of scam, thoroughly vet any payday loan website you’re thinking about using. And read all of the fine print to make sure you understand it.
Use the table below to compare legitimate short-term lenders, based on how much you need to borrow and for how long.
Even if you need cash right away, a payday loan isn’t your only option. There are other types of loans that can help you with your cash shortfall. Moneyadviceservice.org.uk has a helpful guide on alternatives you could seek.
Here are some options to consider as an alternative to payday loans:
Short-term loans can be a useful form of borrowing, but should only be used as a last resort. If you’re already struggling for money, taking out an expensive loan could actually end up causing you more financial problems.”
These steps might not be able to get you your money back, but they will make a dent in the ability for scam artists to function in the future while helping you protect your identity. The best way to prevent a scam is to know what one looks like, so familiarise yourself with this page in order to know what to avoid in the future.
There are reputable payday loan lenders, but there are also many disreputable companies in the industry as well. Be sure to do your research and thoroughly compare your options for a short term loan before applying.
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