09 Apr Reckless Lending in the Digital Age: Online Payday Loans

When we’re down and out financially, we all look for an easy and fast way out. Most, if not all of us have considered online payday loans. Usually, they promise same-day or instant approval, flexible repayment plans, and high loan amounts: instant success with repayments starting in the distance of the following month.

Technology has progressed at lightning speed since the dot-com bubble. It’s no longer a prerequisite to visit loan offices if you would like to take out a loan. Most online payday lenders don’t even have offices. Instead, the websites are subsidiaries of larger companies or lenders looking to maximise their chances of acquiring new leads to lend to.

Some of these online payday loan websites lend money to people recklessly or illegally. What are the consequences of these loans, what signs should you look out for, and what should you do if you were recklessly lent money?

Read on to find out.

The Consequences of Reckless Payday Loans

Most payday loans set their APR (annual percentage rates, or interest rates) to the legal limit, with most lenders not disclosing this early on. Illegal lenders may further inflate their interest rates to maximise their profits.

Usually, if you can’t pay the loan back on time, payday lenders generously offer the option to extend your repayment term, sometimes for a fee. Interest rates may stay the same or increase, adding to your overall loan amount. Sometimes, this may mean you need to take out another loan from a different lender to pay on time, pulling you into a vicious downward spiral of debt and leaving you in the dust, likely to become a victim of a debt collector’s efforts.

What’s more, some lenders tack on extra fees like admin fees, maintenance fees, processing fees, late fees, and more – one day your payday loan is R10,000, the next it’s R15,000. When you default, some lenders may report to the credit bureaus, making qualifying for future credit much harder.

How to Tell If a Payday Loan Is Reckless

Spotting a reckless payday loan is crucial to protecting your finances, access to credit, and sanity.

Extremely High APR

If you don’t know the legal APR limit for personal loans (payday loans), it’s easy to fall victim to extremely high interest demands, making falling into a gruesome debt cycle more likely than not.

No Credit Check

Loans without credit checks are quite literally the definition of reckless lending. The National Credit Act mandates that all lenders must conduct an affordability assessment before granting credit. If they ignore that you can’t afford the loan, you’re likely to default, or don’t check your credit report at all, they’re lending you money recklessly. Stay away from these lenders.

Push for Extension Periods

Lenders offer extended repayment terms or the option to postpone your repayment date because they want you to pay more and keep you indebted. The longer you wait to repay your loan, the more they can charge in interest and fees, keeping you trapped and making a profit.

Hidden Terms and Vague Agreement

If you struggle to interpret your loan agreement in plain language, your lender is probably trying to rip you off or charge you more than what’s reasonable. You should always be able to decipher the terms of your loan agreement easily. According to South African contract law, agreements are not executable if a party does not understand their terms or it’s written in a language that they can’t understand.

They’re Not a Registered Lender

All lenders must be registered with the National Credit Regulator. Per advertising law, their NCR number must be displayed on all advertising material they distribute and disclosed to clients.

If you can’t find them on the NCR’s database, they’re likely not a legitimate lender and should be avoided.

If you spot any of these signs, run. These lenders are out to get you and will not act in your best interests.

What to Do If You Were Recklessly Lent Money

Credit Boost can help you assess whether you were recklessly lent money. We’ll ask for the original credit agreements, copies of your credit reports at the time, and statements from your creditors. If you were recklessly lent money, you’re likely eligible to have part or all of your debt written off.

Contact Credit Boost today. We would love to help you reach financial freedom.