Payday Loans Go Online. Should You Check It Out? (Spoiler: No.)
It’s no secret that a lot of college students are strapped for cash. If that describes you, you might have seen ads for online payday loans and been tempted. But these types of loans can cause all kinds of problems—it’s not exactly easy money.
Payday loans, sometimes referred to as “check loans” or “cash advance loans,” are loans for small amounts, sometimes as little as $50 or $100, that are due with interest the next time you get a paycheck. You usually have to give the lender your checking account number in advance—or write a check up front with the full balance due—so that the lender can be sure of getting the money back.
Payday loans fill a need, especially for people without a lot of money to start with. They don’t require great credit or assets; you can get one even if you have bad credit and own nothing of value. Many people turn to payday loans when they just need to make ends meet and can’t afford to wait for their next paycheck.
But the interest rates for payday loans are typically a lot higher than they are for a normal loan or even a credit card—up to 400%, as opposed to the 12%-30% range seen on a lot of credit cards. Plus, giving the lender access to your bank account can open the door to all kinds of scams.
Some online payday lenders have asked prospective customers to provide bank account information up front in an online application, under the guise of gauging their qualification for the loan—only to take advantage of this information to lift money from their bank accounts. In fact, you don’t even have to submit this information for it to fall into the hands of scammers—as keystroke logging software can capture what you type, regardless of whether you submit.
State laws regarding how much you can borrow, or whether you can borrow from payday lenders, vary. But with the proliferation of online payday lenders, you may now have access to types of loans that used to be illegal in your state.
If you’re finding yourself stuck for small amounts of cash, there are better alternatives. You can check with a credit union—these tend to be less profit-focused than banks, and some make small, short-term loans with low rates. You can also get a cash advance from your credit card company; while this will have a higher interest rate than most other loans, it will probably still be better than a typical payday loan—although you should verify this.
It’s important to be savvy about interest rates, no matter where you get your loan from. Look at not only the interest rates, but also the finance charges and fees. Find out what you’ll be charged for late payments, for paying via mail rather than through automatic deposit, and other surprise fees—as a low interest rate could disguise higher rates somewhere else.
Payday loans are attractive to people who are low on funds—and who may not be very financially savvy about their options. But payday loans are typically more expensive than they look, and there are other ways to get a small amount of cash. If you have to borrow, look to your local credit union. Over the long term, sit down and work out your monthly budget, figure out how much discretionary spending you can do every month, and avoid unnecessary expenses so you can make sure not to get into dire financial situations—and won’t need to turn to payday loans. For students in accredited online schools and traditional schools alike, a little financial awareness can go a long way.
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