The person or person that first came up with the idea of offering quick online loans has managed to change the way in which people borrow money, unfortunately not always for the good. Online loans are great business for banks and money lending institutions; however, they are not always great for the uninitiated customer. The borrower will soon get despondent and downhearted when they notice most of their hard earned cash disappearing from their bank account at the end of the month.
A Loan By Any Other Name Is Still The Same
The loan industry has many names for these quick turnover loans, such as payday loans, online loans, online advancement loans, pay check loans and more. Yet despite the varying names, they all have one thing in common, and that is the often astronomical amounts of interest and fees that come attached to them, many of which introduce the borrower to a cycle of debt, loan and repayment.
So What Happens When You Apply?
The process of applying for an online loan begins with logging into the lenders website. There, you should find a list of loan amounts, interest and fees; so that you get a rough outline of the amount of money you will be expected to pay back on the repayment date. Once you have made your mind up to apply for an online loan, then the following process takes place.
- The lender will ask you for proof of your income and your bank details, this you can achieve by either posting the documents, or a safer way is to scan the documents onto your computer, and email them across.
- Once they know that you have a regular income, they will offer you the loan, with a repayment date that matches the date of your next pay check.
- When you accept the terms and conditions of the loan, the money will be transferred into your bank account.
- The traditional way in which they took the money from your account, was to ask you to send them a post-dated check which would be deposited into their bank account so that the money would clear on or around the payment due date. However, thanks to modern internet banking and debit cards, most online loan companies will simply ask for your bank account and debit card details. Then the money you owe will be withdrawn from your bank account via your debit card.
Paying Back The Loan
The one thing that causes the most difficulties with people who have taken out payday loans with no fax, is that they usually end up with little or no funds in their bank accounts after the lender has recouped their money. But what happens if you do not have the funds in the bank and the repayment date is drawing ever nearer?
How To Overcome Payment Difficulties
Most lenders, who offer short-term loans, will have a policy whereby they will allow you to extend the repayment date, however, this is hardly ever free of penalties, and you will probably be charged an extra fee on top of what you already owe.
Defaulting On An Online Loan
Defaulting on any kind of loan is not advisable, as your credit report could suffer a lot of damage, which can take many years to rectify. However, there may come a time when you really do not have the funds to make the repayment, and you will need to take action before things get too serious. One problem with online loans is that the lender will ask you to provide your bank and debit card details at the point of applications. So when the time comes for them to take their payment, and you do not have sufficient funds in your bank account, they may keep trying to take the money at regular intervals. These attempts to take money from your account, could lead you to incur charges from your bank, so you will need to take drastic action in order to avoid this scenario.
Switching Bank Accounts
There is only one way in which you can truly free yourself from the risk of continuous withdrawal attempts from a lender, and that is to close the account that you signed up with, and go and open a new one. Obviously, you will still owe the money, and it is going to be in your best interests to pay it back as soon as you can, however, this is one way in which you can lessen the impact of continued repeat withdrawal attempts, which could mean having your bank account cleared of funds, or bank charges levied against you. Once you have switched bank accounts, you can then contact the lender, explain your financial difficulties, and arrange a repayment plan.
Why Would Anyone Want One Of These Loans?
The answer to that question is desperation. The person applying for the online loan, is probably already in a position where they are struggling financially, or they have a bad credit rating and they think that they cannot obtain credit through any other means. The biggest problem that we touched on earlier is that more often than not, the people who apply for these types of loan often get caught in a spiral of debt, loans and repayments. Because the interest and other charges are so high, when the time comes to make the repayment, they often find that they have very little money left to see them through to the next pay day. This means that they have to go back to the lender and apply for another loan, and so it continues, until they reach the point where they have no other option but to default on the loan.
Are The Mainstream Banks Offering Help?
Some of the bigger banks in the United States are finally beginning to see the problems associated with companies who offer quick-fix loans, and some of them are now actively making it easier for their customers to stop automatic withdrawals and close accounts. In fact one of the largest banks, JP Morgan, has been offering their customers easier ways to block payments from payday lenders since May 2013.
“The practice is terrible,” JPMorgan CEO Jamie Dimon said at an investor meeting in February 2013.
This was in response to a report published at insightcced.org, the website of the, Insight Center for Community Economic Development, which stated that online loans are a burden on the country as a whole, with 14,000 job losses, over $770 dollars of consumer spending lost, as well as a significant rise in the number of bankruptcy applications due to payday loans.
“Payday loans are an ongoing problem and an economic drain,” said Tim Lohrentz, the center’s program manager and author of the report. “The amount is not huge in the big picture of the total economy, but it’s big enough.”
What Positive Steps Can You Take In Order To Avoid Online Loans?
To the person who is giving serious consideration to obtaining an online loan, they may be under the impression that there is really no alternative, however, that is not always the case. In order to avoid taking on a payday loan to cover a brief financial problem, there maybe one or two alternatives that may have been overlooked.
Exploring The Other Possibilities
There are a number of avenues that you should explore before you opt for a short-term loan from a loan company.
- Look on the internet for alternative ideas. You may find that there is an alternative solution to your immediate money worries. One popular way is to apply for a credit card with a company that specializes in offering credit cards to people with less than immaculate credit reports. As well as having lower interest rates, you will also have the advantage of lower monthly payments, rather than having to find excessive amounts of money each payday. Plus a lot of credit card companies offer incentives, such as cash back and loyalty points.
- Ask friends and family for help. This is not always easy, and you can risk your relationships with your friends and family members, however, if they have mentioned in the past that they are willing to help you out, then it is worth asking them. After all, they will probably not want you to get involved with an online loan company either, and they will be more willing to help you out.
- Credit Unions. These are often overlooked by people who need short-term loans, and they are much better than internet loan companies, as they are non-profit agencies, so they do not charge exorbitant interest and fees.
To Sum Up
Hopefully, this article has given you a taste of what can go wrong when you take out a loan with an online loan company. There are many problems that can arise, the biggest one being the trap you can find yourself in, as easy as online loans are to obtain, they are very difficult to get away from, unless you have the means to survive a large proportion of your wages leaving your bank account each month.