Orlando, FL (PRWEB) March 22, 2013
A February 2013 report released by the Pew Charitable Trust shows that 27 percent of people who take out payday loans are hit with bank overdraft fees on top of loan fees. The top competition for payday loans is auto equity loans. While not a lot of official data exists on the auto equity loan industry, some companies do direct withdraw payments that could lead to the extra bank fees.
The report shows that consumers give lenders permission to withdraw funds from their bank accounts. If the loan company tries to withdraw from an account with no money, it will incur overdraft fees. The report says the loan companies don't stop there. After a withdraw is attempted and failed, it will continue to try to withdraw money, adding an overdraft fee every time.
This can be stopped, however, according to the report: “Federal law is clear that if the consumer has notified the bank orally or in writing up to three business days before the scheduled date that the consumer has revoked authorization, the bank must block all future payments,” says Lauren Saunders, managing attorney at the National Consumer Law Center.
Still, the report shows that nearly half of all borrowers who use online payday lenders are hit with an overdraft fee due to automatic withdraws.
While very little data exits about auto equity loans, a report released by the Center for Responsible Lending which compared payday loans with auto equity loans shows that the typical title loan term is twice as long as that for payday loans (thirty days and two weeks respectively). Also, while payday loans are secure by access to personal checking accounts, title loans are secured by an owned car title.
One similarity in the two reports is that both payday loans and auto equity loans seem to make it more attractive to renew the loan than to pay it off. The Pew Charitable Trust report states that four in five borrowers use three or more loans per year, while the report from the Center for Responsible Lending states that the average auto equity borrower renews their loan eight times.
The Center for Responsible Lending report states that while both types of loans offer a high APR, the average title loan APR is 116 percentage points lower than the APR of the average payday loan. However, both types of loans are designed to be paid off in much less than a year.
Both loan types have a strong online presence. One of the most visited title loan sites in Florida is Orlando Auto Equity Loans, while branded sites for payday loans dominate that market.