A:

There are several differences between in-store and online payday loans. They include:

Interaction between borrower and lender.

When taking out a loan at a storefront payday loan company, it is easy to identify who to ask for help. With an online payday loan, company loans may be taken out with lead generators who market loan applications to a number of lenders.

Lenders are licensed to do business in different states.

In some states, such as Georgia, payday loans are expressly prohibited and considered a violation of racketeering laws. New York and New Jersey prohibit payday loans under criminal usury statutes and limit loan costs to 25% and 30% respectively. There are 32 states that allow triple-digit annual interest rates on payday loans and have enacted safe-harbour legislation for payday lenders. The nature of borrowing money from a payday loan company online dictates that consumers could be dealing with an out-of-state or possibly out-of-country lender.

Unless consumers ask questions or research the interest rates and other fees charged by their lenders, they could be charged much more than what is permitted in their home states. If challenged, it is likely that lenders may refuse to loan money to consumers outside states in which they are licensed. However, for consumers who are willing to pay the company's set borrowing rates, there are many examples of people borrowing money from payday lenders located in states other than their own.

Online lenders are more likely to be involved in unscrupulous activity.

There are many legitimate online payday loan companies that work diligently to adhere to their states' payday loan laws and any other legislation they fall under. Unfortunately, there have been examples of criminal organizations perpetrating frauds by posing as payday loan companies to gain access to banking and credit card information and enroll unwitting consumers in programs with recurring charges. The consumers gave consent to these enrollments by agreeing to conditions buried deep in an online loan application agreement. It was reported in 2009 that Suntasia Marketing, Inc. bilked consumers out of millions of dollars. It is conceivable that there are others involved in such practices.

Examples of payday loans and costs.

An online payday loan company is offering loans at the following rates as of October 2014:

  • For a 14-day loan on $100 the cost is $14.99, which equals an annual percentage rate of 390.8%.
  • For a 14-day loan on $200 the cost is $24.99, which equals an annual percentage rate of 325.8%.
  • For a 14-day loan on $300 the cost is $34.99, which equals an annual percentage rate of 304.1%.
  • For a 14-day loan on $500 the cost is $54.99, which equals an annual percentage rate of 286.7%.

Bank of America offers home equity line of credit accounts with introductory rates of 1.99% and regular rates of 3.73%. Credit cards typically have rates in the range of 11.99-21.99% and on their own are considered a very costly way to borrow money. Consumers are advised to seek any other possible avenues for borrowing money before deciding on a payday loan company. Once this decision is made, it is important to shop around and ask as many questions as possible to make an informed decision. Be wary of predatory practices and possible scams, and stick to recognizable brands.

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