A debit card payday
loan is a short term loan made against the guarantee of your debit card, with
the agreement that the loan will be paid back on your next payday. If you're
facing a temporary cash shortage, a debit card payday loan can be a tempting
quick fix.
Your need may be as
basic as suddenly being out of groceries, or as unique as needing a bit extra
to fund an engagement ring or a big celebration. You may be confident that you
can cover any debit card loans by your next payday, but there are many risks to
these loans.
The loan period is
usually about two weeks and finance charges on these payday loans are typically
in the range of 15-30% for the two-week period. That may sound like not much
more than credit card interest rates, but translated into an annual percentage
rate (APR), that's a whopping 390 percent to 780 percent - far, far more than
the most exorbitant credit card rates.
Despite the high
interest rates, the convenience of payday loans is another part of what makes
them tempting. There are many online loan companies that will extend debit card
loans without you needing to do more than provide bank account, Social Security
and employment information. It can be almost as easy as setting up an account
with something like eBay - but the risks are much greater.
Debit card payday
loans can be easy to get - making them attractive to people with poor credit
and short term needs - but difficult to get out of in the long run.
Debit Card Payday
Loans: The Danger of Getting Caught in a Cycle
If you reach the end
of your loan period and don't have enough in your bank account to pay back the
loan, you face several problems. The loan company will attempt to transfer the
funds from your account - if the funds aren't there, your bank will charge you
an overdraft fee. Then, the loan company will charge you a fee for not paying
the loan, and flip the loan over to your next pay period. The high interest
fees will continue to apply to the loan as well, further hiking up the amount
you owe.
This triple threat -
overdraft fee, loan default fee, and continuing high interest rates - can land
you in a cycle in which you struggle to pay off the loan by the end of each pay
period. If you can't pay it off in full, the loan will continue to flip and accrue
interest. You'll be caught in a punishing cycle.
Debit Card Payday
Loans: Surrounded by Controversy
This punishing cycle
is one of the reasons debit card payday loans are so controversial and are even
illegal in some states. Some legislators have campaigned vigorously against
debit card loans companies, accusing them of trapping people in cycle of credit
dependency, and of aggressive, misleading advertising and billing practices.
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