The idea of obtaining instant payday loans through online lenders is fast gaining popularity primarily because obtaining cash advance loans from any online lender is an easy and convenient process where the borrower is not even required to move an inch from his house. However, borrowers are ignoring the fact that there are several dangers and risks associated with online payday loans.
The foremost danger is the interest rate charged by online lenders. In most cases, the annual percentage rates on these loans range between 550-650 percent. For example, a payday loan of $500 can cost an excess of $150, if the loan needs to be repaid on the next payday. This amount will be electronically deducted from the borrower's checking account. In case the borrower does not have enough funds in the account, he is liable to pay charges that are levied both the bank and the lender.
Another risk is the requirement of divulging important and confidential personal information such as bank account number and social security number to the lender while applying for an online payday loan. Revealing any such information on the website can be dangerous. In fact, this strategy has formed the basis of several online payday loan scams aimed towards duping borrowers.
Another danger associated with online payday loans is that online lenders automatically renew the loan even if the borrower's loan is due on the next payday. Since they have access to the borrower's bank details, they just withdraw the required finance charges from the account while extending the loan for another pay cycle without even seeking the permission of the borrower. Borrower comes to know about this once he gets his periodical bank statement.
