aud dollar laptop diagram black

How to Recognise (and Avoid) Payday Loan Scams

When you’re strapped for cash, you might consider a payday loan as the best option. However, before applying for one of these loans, it is important to be aware of what red flags to look out for.

Many payday loan scams are designed to take advantage of unsuspecting borrowers by tricking them into paying exorbitant interest and fees. Is it possible to tell whether or not a payday loan is legit? More importantly, how can you guard yourself against being exploited? Continue reading to learn how to identify and avoid scams in the payday loan industry.

Nobody can deny that payday loans can be a lifesaver for those who find themselves in a tight financial spot. It’s also possible to get scammed by scam artists who offer payday loans if you don’t exercise caution. Learn how to recognise and avoid these scams so you can get the help you need without having to give up your hard-earned money in this article. By following the advice provided here, you can keep yourself safe and in command of your finances.

Are there times when you’ve been in a bind and needed money now but didn’t know who or where to turn to? Payday loans may have crossed your mind if this is the case. However, before you sign any paperwork, make sure you understand the potential dangers of taking out a payday loan.

How to recognise and avoid predatory payday loan practises will be the focus of this article. If you are aware of the red flags that indicate trouble, you can avoid falling prey to a con. If you’re curious, keep reading to find out more!

Did you know that some payday loan companies are dishonest? Avoid being a victim of a loan scam where a company promises you that it will provide you with money, but then does not deliver on that promise. What are your options for self-defense at this point? Identifying a scam and locating a reputable payday lender are both covered in this post, so read on for advice on how to avoid falling victim to either. What are you waiting for? Click here to learn more!

For the majority of people, borrowing money has been a necessary part of their lives at some point. Also, if you’ve ever found yourself in a bind and required cash right away, you’ve probably considered applying for a payday loan. You should, however, be aware of the dangers associated with payday loans and how you can avoid being taken advantage of by scammers before you take out a loan. You should keep these tips in mind as you search for a payday loan.

You may think that payday loans are an easy way out of a financial jam when you’re in a tight spot. However, the fees and interest rates on these loans are extremely high, and if you don’t pay attention, things can quickly get out of hand and snowball. Now the question is: how can you tell if a payday loan is a rip-off? More importantly, how can you avoid them altogether? Payday loan scams can be identified and avoided with the information in the following paragraphs.

It can be difficult to make it through the week until your paycheck arrives. As the bills pile up and the rent is overdue, you don’t have the money to pay either one. Consequently, you might be persuaded to take out a “simple” payday loan after seeing an advertisement for one, leading to a never-ending debt spiral. You should be aware of the warning signs of a scam before taking out a loan. If you want to avoid falling victim to a payday lender’s scam, here are some tips.

Did you know that some payday loan companies are dishonest? If you’re in a tight spot and in desperate need of some quick cash, it’s critical that you know how to spot scams so you don’t lose all of your hard-earned money. You will learn how to spot a payday loan scam in this blog post, as well as what steps to take if you believe you have been a victim of one. Interested in learning more? Keep reading to find out more!

You might think that a payday loan is a good option if you’re looking for a quick and easy way to get some extra cash. A thorough understanding of the risks involved is essential prior to applying for one of these loans

Payday loans are rife with dishonest practises, and if you’re not careful, you could end up paying a lot of money for nothing in return. So, what are your options for self-defense? Payday loan scams can be identified and avoided with the help of the following advice.

If you’re in a tight spot financially, getting a payday loan may seem like your only option. However, before you apply for a short-term loan, make sure you do your homework. It’s possible to get into serious debt if you’re not careful with payday loans; there are numerous scams out there.

So how do you tell a legitimate payday loan from a fraudulent one? The next step to take is to investigate whether or not a scam has been perpetrated against you. Payday loan scams can be identified and avoided by following the advice provided in the following paragraphs.

We are ready to go now.

FAQs About Payday Loan

Will Taking Out A Payday Loan Hurt My Credit Score?

There is a low probability that getting a payday loan will have an effect on your credit score because these loans are typically not reported to the three major national credit reporting companies. When determining loan eligibility, the vast majority of storefront payday lenders do not take into consideration traditional credit reports or credit scores.

When It Comes To Paying Them Back, Are Payday Loans Difficult Or Easy?

The borrowers of other types of loans, such as mortgages and auto loans, are typically given a considerable amount of time to repay the balance of their loans. Payday loans, on the other hand, have a relatively brief repayment period, which can make it challenging to repay the loan in one go and leave no outstanding balance.

When You Apply For A Payday Loan, Is Your Bank Account Checked?

There are a few reasons why payday lenders require you to provide your account number and routing number. Check that your bank account is valid. In order to qualify for the majority of loans, you are required to have a bank account that is active. You can quickly ascertain whether or not you meet the requirements by using this method.

What Consequences Will I Face If I Default On A Payday Loan While Also Closing My Bank Account?

If you close the checking account to prevent the lender from taking what you owe, the lender may try to cash the check or withdraw money from the account anyway, despite the fact that you have closed the account. Because of this, you run the risk of owing overdraft fees to your bank. Your loan from the payday lender could be turned over to collections. After that, there will be additional charges and fees.

Why Would Someone Refuse To Give Me A Payday Loan?

Your credit score, the amount of money you make, and the amount of money you have borrowed in the past are the three primary factors that will determine whether or not you are approved for a loan of any kind, including a payday loan. Even though many payday lenders do work with borrowers who have credit scores that are lower than average, there are still some that won’t work with you if they determine that you won’t be able to repay the loan.

What is a Payday Loan?

With a typical loan amount of $100 to $1,500 (though it can go as high as $2,000 in some cases), a payday loan is a short-term, unsecured loan.

Payday loan companies advance the money to borrowers, who promise to pay it back in full when they get their next paycheck. Proof of identity, a paystub, and an active bank account are all that is required.

On the surface, it appears to be a valuable service.

However, payday loans prey on those who are desperate for cash and have no other means of getting it. These are short-term loans that must be repaid quickly. Because a credit check is not required, there is no delay in making the money available to you. As a result, the majority of loans are given to people with bad credit. As the market for high-interest loans is easy to access, it has become an attractive target for scam artists.

Taking out a payday loan usually results in a worse financial situation for the borrower. They’re astronomically expensive. Including interest, the processing of the loan costs around $18 for every $100 borrowed. The interest rates on these loans are typically exorbitant, often exceeding 300 percent annual percentage rate (APR), when compared to the “high” standard rate of 25 percent associated with credit cards (annual percentage rate).

If you can avoid it, it is strongly advised that you do not take out a payday loan; there are many other options available, many of which are legitimate. For those who have no other option, it’s important to make sure the lender you choose won’t try to scam you.

Get Your Payday Loan Under Control With These Steps

1. Work out what you can afford to pay

Create a simple budget and figure out how much money you have available to put towards your debts if you’re having trouble making the payments. You can proceed to the next step once you have this number.

In the event that you are able to make a monthly payment, you should do so immediately, and you should contact your creditor to set up a repayment plan.

2. Cancel or change the amount of the direct debit

A direct debit is used for payday loans, and the money is automatically deducted from your account on the due date for repayment. The automatic payment amount can be changed to one that is within your budget (based on Step 1). If the payday lender won’t accept the lower payment, cancel the direct debit and find another way to make payments.

3. Ask for a repayment arrangement

When applying for a payday loan, ask the lender to set you up with an affordable repayment plan based on your income.

Repayments that are beyond your financial means should not be committed.

If the payday lender refuses to enter into a repayment agreement, proceed to Step 4.

Payday loan companies must abide by the rules set forth by the government.

Lenders of short-term cash advances have a legal obligation to make sure that making required payments won’t put too much strain on your finances.

4. If you can’t agree, you can dispute it

The Australian Financial Complaints Authority (AFCA) can review the payday lender’s decision if you can’t accept that it’s reasonable and within your financial means. With the help of this free and impartial service, you can explain to your lender how working with them can help you get back on track with your payments.

Why do Payday Loans Carry a High Risk of Being Scammed?

Even with a legitimate payday loan, the turnaround time is extremely fast. In either case, you can apply for the loan in person or online, fill out the required information, and receive your money in your bank account almost immediately.

As a result, payday loan scammers know that borrowers are less likely to read the terms of their loans or do any research into the company that is providing them.

Borrowers are therefore easy prey in two respects:

Personal information, such as one’s date of birth, social security number, and confidential financial information, is more likely to be shared with strangers when a person is in a desperate situation.

Some fraudsters will gather this information from their victims without ever loaning them a penny. Their victims’ bank accounts or social security numbers can be used for other types of identity theft as a result of this.
There are scam artists who will give you the money, but they’ll add illegal fees and unfavourable loan terms in exchange.

When this happens, lenders may try to pressure you into signing before you’ve had a chance to read the terms of the loan, or they may begin harassing you for payments you didn’t expect after the loan has been processed, and they may even threaten you or your family in order to get you to pay.

australia dollars glass saving money concept

Common Payday Loan Scam Tactics

How can you determine whether or not the business that is offering you a payday loan is a scam?

There are several red flags, including:

  • Requiring a payment or deposit before you get the money.
  • Asking you to pay “insurance” upfront to secure a lower interest rate.
  • Not telling you their name, employee ID number, or company information.
  • Sending emails from Gmail or Yahoo email addresses.
  • The name of their “company” is close to — but doesn’t exactly match the name of — a real financial institution. 
  • Next, they ask for your online bank sign-in information.
  • Finally, they want to deposit a check and have you return the money to them as a way to “verify your identity.” 

If you could avoid ever having to make an advance payment on a payday loan, that would be helpful. However, this completely undermines the intention behind the loans in the first place.

Watch out for These Signs of a Possible Payday Loan Scam

The fact that you feel pressured into signing a contract before you’ve had a chance to read it is a major red flag when it comes to an online loan. The time you spend going over the terms is time well spent if it prevents you from falling victim to a con artist.

The terms of a loan may be unfair or illegal, and lenders who pressure you to sign before you have read the agreement or don’t want you to ask questions are trying to keep you from finding out the truth.

Unexpected fees, threats, and phone calls requesting your personal banking information are all red flags to watch out for.

Scammers are more than likely the ones who try to tack on new charges once you’ve signed your loan agreement or after you’ve paid off your loan in full. It is illegal to alter the terms of a loan once it has been signed. Lenders must provide you with new terms if they need or want to change the terms of your loan.

Even if you’re dealing with a legitimate financial institution, they won’t ask you for personal banking information over the phone. Since they have no need for it, they won’t do it. You should not give this information to anyone over the phone, even if you are conversing with them. Instead, make an effort to learn how to get in touch with them.

Ask for their name, employee number, and the company’s website and telephone number. If you are unable to independently verify the individual’s status as an authorised employee of the company, do not collaborate with them.

Watch out for Emails and Phone Calls from Payday Lenders

If a lender for payday loans threatens you with any of the following, you should be aware that they are acting unethically and are likely running a scam:

  • Revoking your social security
  • Going to jail
  • Garnishing your wages
  • Blacklisting you (for jobs, banks, etc.)

Despite the fact that they sound terrifying, none of these activities are permitted by law for any payday lender. As a result, these are scare tactics intended to coerce you into paying money that you may or may not be required to pay by law to.

Additionally, be on the lookout for emails or phone calls coming from restricted numbers that appear to originate from Gmail or Yahoo email accounts. Anyone can alter the sender name in their email, but if the email does not come from domain owned by a legitimate financial company, then it is a scam.

Stories from Debt Collection Scam Victims

Many payday lenders are active in the market, looking for people who are willing to fall prey to their lies.

Many people have been duped by scammers posing as agents of a fictitious collection agency, according to reports. Threatening statements are made by the “debt collector.” Among other things, one man was told that he would be arrested and taken to jail if he didn’t pay a thousand dollars in fines.

Failure to repay a payday loan will not lead to criminal charges, so remember that. Furthermore, the Fair Debt Collection Practices Act makes it clear that making threats of this nature is against the law, even if the debt collector is legitimate.

One poster described how she was able to protect a friend from falling victim to a similar scam after she was the victim of the same con herself.

“I was able to stop someone from loading money onto a card and then sending it to a scammer. They claimed that they owed a payday loan company money. I compared what they told us to what we were told, and it appears to be a similar con artist. According to them, they received a phone call from a “law firm” threatening to sue them unless they paid using a pre-paid Visa or Mastercard.”

An anonymous “lender,” according to another user, has been making harassing phone calls.

“I’ve been getting my financial affairs in order for the past few years, and once a debt is paid off, I’ll be sure to obtain documentation as proof. Another caller used scare tactics to get me to hand over my debit card information to a fraudulent company. Since then, I’ve contacted my bank and had the card revoked from my account. Legal action and wage garnishment threats are being made against me.”

The use of physical force or intimidating language by legitimate creditors is never acceptable. You’ll receive a formal summons to court if they decide to bring the matter up. The consequences of failing to appear in court could include having your wages garnished if you do nothing.

You’ve Been Scammed. What’s Next?

Upon discovering that you’ve been duped, what do you need to do to protect yourself?

The good news is that even if you don’t have the money to hire an attorney, there are a few things you can do to try to get your money back.

Your state’s attorney general’s office
Legal aid and financial advice are offered at no cost to the public.

In order to protect consumers and other businesses from unethical or deceptive business practises, the authority was created by the government. It’s their job to ensure that there is a healthy level of competition in the marketplace and to protect consumers like you. Using the page dedicated to reporting fraudulent activity, you can tell the authorities what happened and they will tell you what to do next.

Banks and lenders are monitored by the financial regulator to ensure they treat their customers fairly. They are aware of the prevalence of fraudulent payday loan practises, and they are actively working to eliminate them from the landscape. The dedicated page of a payday loan company can also be used to file a complaint if you are having problems with the company and would like to voice your concerns.

States’ payday loan laws are vastly different. Payday loans are completely illegal in some states. Find out what’s legal in your state and why by contacting the office of your state’s attorney general. The attorney general serves as both the state’s chief legal officer and the state’s top law enforcement officer.

Google “[your state] + attorney general office” and you should be able to locate the website where you can submit a complaint. Complaints procedures vary slightly from state to state, but they can all be found on the Internet. ‘

The final option is to sue payday lenders on a pro bono basis if multiple attorneys believe they can win the case and secure a settlement (without charging a fee). You might want to speak with a local law firm to see if they think you have a good case.

In the event that none of the above options work for you, credit counsellors will work with you to devise a plan that will help you recover from the scam and rebuild your credit.

Close Credit Cards and Bank Accounts

Not to mention cancelling any cards or bank accounts you think may have been compromised if you’re worried about scammers getting their hands on your money.

In order to avoid costly overdraft fees, you don’t want crooks to steal your money without your knowledge.

Your credit card’s customer service number should be called if it is ever lost or stolen. Using this method, they can halt all future transactions and send you a new card with new numbers that the payday lender will not have on record.

By placing a freeze on your credit reports with the three major credit bureaux, you can prevent any new accounts from being opened in your name. Always keep a close eye on your credit reports for any unfamiliar accounts or information that might be an error.

Make contact with the local law enforcement agency to file a complaint. Additionally, they will be able to track the number of people who have fallen prey to this scam within their jurisdiction. Possibly, they won’t be able to help you much more, but they can at least warn other people about scams that are still going on.

Request information on closing your account by contacting your financial institution or credit union. You may be able to complete this step online after transferring your current balance to a new account. A form and a few business days of waiting may be required if you don’t. Before going any further, make sure you have written confirmation that the account has been closed. In the event that something goes wrong, this will protect you.

How to Avoid Payday Loan Scams

As a starting point, you should avoid taking out a payday loan at all costs. There are less expensive alternatives.

1. Payday Alternative Loans

australian money aud with calculator desk

Credit unions offer alternatives to payday loans (PALs). However, the maximum interest rate is capped at 28 percent, making them very similar to payday loans.

2. Cash Advance Apps

Consider obtaining a loan through a mobile app. Paycheck advance apps are newer products that offer short-term loans similar to those offered by payday lenders but do not charge interest. There will be a “tip” request from the vast majority of people. On a monthly basis, some will charge a small fee. Taking out a payday loan, on the other hand, comes with exorbitant interest rates, making it the most expensive option.

3. Other Alternatives to Payday Loans

Some other options include asking your employer for a pay-as-you-go advance, securing a personal loan, using your credit card for a cash advance, or even contacting your creditor to ask for an extension on your payments, depending on your situation. These are just a few of the options that you have.

The Effect Of A Payday Loan On Your Credit Rating

Payday loan records can stay on a credit report for six years, and that’s why lenders have been ordered by the authority to prominently display warnings about this in their advertisements:

Repaying a debt after the due date can put your finances in jeopardy.

Some payday loan companies claim that if you pay back your loan on time and in full, you can improve your credit rating.

It’s important to know that your credit score isn’t the only factor considered when applying for a home loan. Payday loans may be seen as a sign of financial difficulties by your lender, who may also use other criteria.

No Secured Payday Loans

No collateral is required for a loan from a financial institution. Payday loans cannot be secured by your goods or property, which is a sad fact.

The Bottom Line

Do not sign anything until you have thoroughly read the terms of the pay day loan agreement if you have no choice but to take one, even if you need one urgently.

Then, begin paying back your loan immediately. Resolve any financial issues that led to your need for a payday loan after you have paid it back. You won’t need to borrow again in the future if you do this. A good rule of thumb to remember is to set aside money each week to build up an emergency fund. This way, if something unexpected happens, you will be prepared.

Finally, focus on resolving your debts as a priority. Having a little extra money in the bank will keep you safe from scammers because you’ll be more attentive to their pitches and less likely to be taken advantage of.

Content Summary

  • Continue reading for information on how to recognise and steer clear of fraudulent payday loan practises.
  • It is vitally important, however, that you are aware of the potential risks associated with payday loans before you sign any paperwork.
  • You can protect yourself from falling victim to a con if you are aware of the red flags that indicate potential trouble.
  • In this post, we will explain what to look for when trying to spot a scam, and we will also share some tips on how to find a legitimate payday lender so that you can get the money you need when you need it.
  • However, before you do so, it is important to be aware of the risks associated with payday loans as well as the ways in which you can avoid being taken advantage of by scammers.
  • Keep reading for information that will help you identify and steer clear of payday loan scams.
  • But before you go ahead and take out that loan, make sure you know how to spot the telltale signs of a con.
  • Here are some tips to keep you from falling victim to a payday lender’s scam.
  • This is a blog post that will instruct you on how to recognise a payday loan scam and what steps to take if you believe that you have been a victim of such a scam.
  • However, before you apply for one of these loans, it is essential to have a thorough understanding of the risks that may be involved.
  • The following advice will assist you in recognising and steering clear of fraudulent payday loan companies.
  • Check that your bank account is valid.
  • In order to qualify for the majority of loans, you are required to have a bank account that is active.
  • Your credit score, the amount of money you make, and the amount of money you have borrowed in the past are the three primary factors that will determine whether or not you are approved for a loan of any kind, including a payday loan.
  • If you are having trouble paying back the money that you owe, the first thing you need to do is create a simple budget and figure out how much money you have available to put towards your debts.
  • Request a suitable repayment arrangement from the payday lender (one that is based on what you are able to afford), and ensure that it is confirmed in writing.
  • Requiring a payment or deposit before you get the money.
  • Additional red flags to look out for include unexpected fees, threats, and people calling you on the phone to ask for your personal banking information.
  • After a loan agreement has been signed, it is against the law to change the terms of the loan.
  • Although all of these may sound terrifying, no payday lender actually has the legal authority to engage in any of these activities.
  • Consequently, these are scare tactics designed to coerce you into paying the money that you may or may not be required to pay by law.
  • Additionally, be on the lookout for emails or phone calls coming from restricted numbers that appear to have originated from Gmail or Yahoo email accounts.
  • Regrettably, con artists offering payday loans are active in the market, looking for victims among those who are willing to fall for their lies.
  • Scammers posing as representatives of a fake collection agency have reportedly victimised a significant number of people.
  • The “debt collector” makes extremely threatening statements.
  • It is important to keep in mind that failing to repay a payday loan will not result in criminal prosecution.
  • You will be provided with an official court summons if they feel the need to take you to court.
  • You’re in luck because there are a few things you can do to try to get your money back, even if you don’t have the funds to hire an attorney to help you out with the situation.
  • The authority is a government agency that was established with the mission of defending customers and other companies against competitors who engage in unethical or deceptive business practises.
  • In addition, if you are having issues with a payday loan company, you can use the company’s dedicated page to file a complaint about the issues you are experiencing with the company.
  • There are some states that completely prohibit payday loans.
  • Work with the office of your state’s attorney general to find out what’s permitted in your jurisdiction and why.
  • Get in touch with the law enforcement agency serving your area so that a report can be filed.
  • Make a call to your financial institution or credit union and ask about the procedure for closing your account.
  • To begin, it is highly recommended that you do not get a payday loan under any circumstances.
  • The fact that a record of your payday loan will remain on your credit file for a period of six years is one of the primary reasons why the authority has demanded that lenders prominently display warnings of this kind in their advertisements:Warning: Making a repayment late can put you in serious financial jeopardy.
  • Some companies that provide payday loans contend that it is possible to improve your credit rating if you make all of the required payments on time and in full.
  • However, your mortgage application will not be evaluated based solely on your credit rating.
  • It is a violation of the law for a lender to give you a loan that is not appropriate for your needs.
  • Then, immediately begin repaying your loan.
  • After you have paid off the loan, you should address the financial issues that caused you to seek out a payday lender in the first place.
  • And last but not least, make paying off your debts your top priority.
Scroll to Top