Debit card loans have become popular recently, as they are a quick way to borrow small amounts of money and there is rarely the need for the credit checks necessary for other types of loans. However, it must be remembered that these loans have nothing to do with debit card providers.
Debit card loans are a variation on payday lending, which lends small amounts of money at a high rate of interest for a short time. Although the rates of interest are very high, sometime 400% or more, these loans can actually be cheaper than the penalty for spending over a credit card or overdraft limit. This money can be advanced within a few minutes.
The lending is done by running through a debit card on a delayed basis, meaning the debit card will be charged for the funds when the money is in the account, usually when the cardholder’s wage or salary is paid. The amount charged is higher than the amount loaned, to cover the interest and any fees assessed.
As this form of lending is for small sums over small periods and is also unsecured, the administrative costs are quite high. Therefore the interest rates charged are among the highest of any form of lending. This should be borne in mind before accepting such a loan.
Although this is called “debit card lending,” it would be a misconception to assume it is somehow connected to the debit card provider. It is not. Debit card lending and debit card loans are quite separate from the debit card providers. Although they may be covered by zero liability guarantees if there is any fraud, there will not be any extra cover.
Although most debit card loan providers are honest, the borrower should ensure the loan is only charged once and not twice or even more times. If this should occur, the debit card lender should refund it, although it may be necessary to seek reimbursement from the debit card provider.
Debit card loans can be a useful service for some people, despite the high interest rate. However, they are provided by people who provide other forms of short-term credit and not by the debit card providers themselves.
