Payday Loan - What to Avoid?

Payday loans trap consumers in repeat borrowing cycles due to the extreme high cost to borrow, the very short repayment term, and the consequences of failing to make good on the check used to secure the loan. Consumers have an average of eight to thirteen loans per year at a single lender. In one state almost sixty percent of all loans made are either same day renewals or new loans taken out immediately after paying off the prior loan.

Risk and Cost of Checks for Loans
Every unpaid loan involves a check that is not covered by funds on deposit in the borrower's bank account. Failure to repay leads to bounced check fees from the lender and the consumer's bank. Returned checks cause negative credit ratings on specialized databases and credit reports. A consumer can lose her bank account or have difficulty opening a new bank account if she develops a record of "bouncing" checks used to get payday loans. Research indicates that payday loan users are almost twice as likely to file for bankruptcy as borrowers who are turned down for a payday loan.

Coercive Collection Tactics from Check Holding
Basing loans on personal checks leads some lenders to using coercive collection tactics. Some lenders threaten criminal penalties for failing to make good on checks. In some states lenders sue for multiple damages under civil bad check laws.