By David Pilley on April 20, 2011
.jpg.aspx?width=75&height=75) Yep, another article about payday loans. It’s an important topic to talk about not just because of how easy it is to get one, but also because of how easy it is to get in debt from receiving one. This time I’m talking about the way the money is placed into your account. If you go to a physical building that sells payday loans, the money might be directly given to you by a person. If you apply for a payday loan online, however, the way you are receiving the money is via direct deposit. The money is electronically transferred from the lender to your bank account within one business day of completing the application. How is this done? Well, it can be done because of the information you gave.
When you fill out an application for a payday loan, one of the requirements is a checking or savings account, typically one that has been open for at least six months. If you are filling out an online application, you’re also going to be asked to enter in your bank account number, to ensure that the money ends up in the right place. Once you give the lender your bank account number, the money can then be transferred electronically. You might think the transaction is simple and hassle-free, but this is only the case if you have sufficient funds in your account.
You see, when you give someone your bank account number, that person has access to it. Just as the money was electronically placed into your account, it can just as easily be taken out. And the amount that will be taken out is always going to be more than the loan amount that was placed in. When the payment is due and the amount owed is more than what is in your checking account, you will be dealing with even more fees. If you also have a savings account, your bank will electronically transfer an amount from this account to your checking account, and it will also charge an overdraft fee, taking even more money away from you.
If you don’t want to deal with this scenario, you should stay away from online payday lenders. Your best bet would be to go to an actual store and fill out the application there. The lender may ask you to write out a postdated check for the day the amount is due back. This way, the money is not taken out electronically and you can make sure you have sufficient funds in your account when the money is due. You have control over your bank account and not somebody else. The possibility of someone else having your personal information, potentially leading to identity theft, is the major reason why a direct deposit payday loan might not be good for you.
Note: Credit unions often have payday loan style products available at a fraction of the cost (15% vs. 390% APR).
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