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Are payday loans scams?

Payday loan scams may seem like old news, but they're more common than ever. While we were hunkered down, with only our smartphones, laptops, and streaming devices tethering us to the outside world, teetering on the apocalypse (OK, some of us watched too much cable news), predators had us right where they wanted us.

Plainly, financial scammers never have been more prevalent or enjoyed greater success. Often, these ne'er-do-wells prey on vulnerable individuals, and many of those happen to be folks who previously have been denied a loan.

These scams are loans to avoid, we suggest payday loans with no broker, so consumers must recognize the signs and how to identify them —  while still knowing how to spot a legitimate loan company.

If you've had an unexpected bill pop up and you're considering a payday loan to cover the cost, you may want to think again. Because no matter how imposing that bill seems to be, these short-term, high-interest loans could pose an even greater threat to your finances in the long term. There are likely better ways to pay for emergency expenses.

But here's the thing, even if you decide not to take out a payday loan, you can still end up getting taken for a ride. That's right. A scammer could get ahold of your information and try to collect on a loan you never borrowed. Here's how payday loan call scammers work and what you can do to fight back.

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What exactly is a payday loan, again?

Payday loans are a type of no credit check loan aimed at folks with lousy credit scores and, more often than not, lower incomes. They're usually no larger than a few hundred dollars and are designed as an "advance" on the borrower's paycheck. That's how they got their name: the due date is usually set for the borrower's next payday. They're also called "cash advance" loans for much the same reason.

These loans have an average length of only two weeks, but they come with an average APR of almost 400%! That's because a two-week payday loan with a flat-rate interest charge of 15% works out to an average annual cost of 391%. Those low weekly rates add up over time.

There are two ways you can apply for a payday loan. The first is by walking into a payday loan storefront and filling out an application. You'll know these stores from the giant signs outside that screech "fast cash now!" and "easy cash guaranteed approval!"

Characteristics of payday loans in Australia

  • Payday loans have high-interest rates.
  • Lenders of payday loans do not run a borrower's credit checks 
  • Payday loans are usually short-termed

  • The limits start from $300 up to $5,000
  • To qualify for a payday loan in Australia, you must have a stable source of income. 
  • You must also have 18 years and above to qualify.
  • And finally, you should have a checking account and be a resident of Australia.

Now that you know the characteristics of payday loans, let me show you the tips to help you get an affordable legal loan in Australia.

Learn how to avoid loan scammers

If you need to get a payday loan in Australia, consider vetting the borrowers that you find online and see whether they are licensed. By so doing, you will be protecting yourself from scams.

Scammers can call or send you messages or emails saying that they want to lend you money. So please don't click on the links or give them your personal information.

That's why it's so essential to verify any information you get about a lender. See this article and learn about how you can identify a scam lender.

If a lender is licensed, they should follow the rules and regulations outlined in the Australian Securities & Investments Commission(ASIC) to ensure that the consumers are satisfied.

Scams surge as pandemic takes hold.

ASIC's renewed focus on consumer protection comes as more and more Australians fall victim to increasingly costly scams.

The "marked increase" in these scams is even more troubling given so many Australians are battling reduced incomes and financial stress, ASIC said.

Delia Rickard, deputy chair of the ACCC, told The New Daily there has been "a real explosion in scams" so far this year.

"We're seeing lots of investments scams, a whole bunch of COVID-19 scams – we've received about 3000 complaints about scams with a COVID link," she said.

Desperate Australians risk falling into a debt spiral

Scams are not the only worry – rising unemployment and falling wages mean many households can no longer cover their bills.

In desperation, many will max out their credit cards or turn to payday lenders to keep food on the table and a roof over their – and their family's – heads.

Unfortunately, these debt-based products could very easily "push them over the financial edge," National Debt Helpline director of community engagement Maura Angle told The New Daily.

"The problem for many people is they are more tempted to use payday lenders or buy-now-pay-later schemes when they are short of cash and struggling to pay bills. 

"If you don't have your usual income and the bills are piling up, taking out a payday loan or maxing out on your credit cards is going to send you into a debt spiral, which can be hard to get out of."

Research from the Stop The Debt Trap Alliance – a collection of more than 20 consumer activist groups – found the interest repayments on these short-term loans can amount to as much as 400 per cent per annum.

Repayments are so expensive that many customers are forced to extend their loans or borrow more to stay on top of repayments.

What if This Happens to You?

If you believe you're being targeted by a con artist, first, you need to cease all communications with whoever has been calling you. If you answer the phone and end up calling a debt collector, just hang up. If you use a mobile phone, you may be able to block the number from calling you again. If not, don't answer any further calls from that number. If these scammers leave voicemails, delete them and don't return the call. Even if you are threatened jail time or loss of employment, you can rest easy. Debt collection agencies (legitimate or not) have no authority to follow through on either of those threats. Debtor's prisons were abolished long ago; you cannot be arrested for not repaying a payday loan. And they can't garnish your wages, either: wages can only be garnished after a legitimate collector follows a strict court-mandated process.

Here's how the payday loan call scam works.

Many times when you are applying for an online loan, you aren't actually going to the lender's website. Instead, you are submitting an application to a lead generator, which then sells your information to lenders looking to get your business.

So even if you don't end up taking out the payday loan that you've applied for, there is a record of your application that contains a whole bunch of personal information, plus how much you were looking to borrow. That record can easily end up being purchased by scammers.

Those scammers then call you and try to collect on a debt you never owed. They pretend that they are a representative from a payday loan company. Sometimes they'll even say that they're a lawyer for the company because getting a call from a lawyer is always intimidating. They might also pretend to be from a government organization.

Once they get you on the phone, that's when the threats begin. These scammers will use all sorts of low-down tactics to bully you into paying. They will yell and swear at you, and they'll threaten to sue you, to garnish your wages, or have the funds taken out of your account.

They'll promise to call all your friends and family members and your employer to shame you into paying. They might even threaten to have you arrested! They will do everything they can to pressure you into paying them. It's blackmailing a person who never did anything worth getting blackmailed over in the first place.

You are protecting yourself from a payday loan call scam.

Remember, these guys (or girls) don't have anything on you. They are putting on a big show to scare you. If you hold your ground and don't give in, there really isn't anything they can do to hurt you. It's all bark and no bite.

The first thing you should do is ask for written confirmation that you owe the debt. Any caller who refuses to produce one is a scammer. And if they do provide you with a written record, you can check that against your own records. For instance, you can request a free copy of your credit report and see if this collection notice has shown up there as well.

Next, ask for all of the business's information. Get the caller's name and the name of their company. Get their address and their phone number too. Scammers don't want people checking in on them so that they won't give you this information. Some quick research will reveal whether or not they're a real company. Legit debt collectors, on the other hand, will gladly offer it up.

And while you should be collecting all of their info, you should not be giving them any of your own. This is a tip that holds true for all phone scams. Do not give your personal information—account numbers, social security numbers—to anyone who calls you over the phone.

Even if this scammer can't get you to pay this fake debt, they might be able to steal your identity with the information they get from you. Do not let them bully you into giving them what they want. Stand firm and push back.

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FAQS About Payday Loans

Lenders have been banned from offering $2,000 or fewer loans that must be repaid in 15 days or less. The fees charged on small amount loans of $2,000 or less that are to be repaid between 16 days and one year are capped.

The major problem with payday loans is that you have a very short time to repay the entire amount that you owe. You usually only have a few weeks at most to come up with the full value of the loan. This is a far cry from traditional personal loans, which you can pay back over multiple years.

Payday loans are incredibly risky because of very high-interest rates and fees. Many people have difficulty paying them off, getting stuck in an ongoing cycle of debt. Payday loans are bad because of the very high-interest rates and fees that cause borrowers to get stuck in a vicious cycle of financial problems.

Probably not. Payday loans generally are not reported to the three major national credit reporting companies, so they are unlikely to impact your credit scores. However, debts in the collection could hurt your credit scores. Likewise, some payday lenders bring lawsuits to collect unpaid payday loans.

 

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