Why Payday Loans Are Always a Bad Idea
It seems that you can hardly drive anywhere these days without passing one or two payday loan businesses along the way. They’ve popped up on virtually every corner. Perhaps you’ve even seen their commercials advertising a convenient way to borrow money. If you just need a small loan to get you by until your next paycheck, you might think a payday loan is just what you need.
The scary truth is that a payday loan is almost never a good answer to your financial woes. With typical loan amounts ranging anywhere from $100 to $800 (depending upon your state), a payday loan is a short-term loan that doesn’t require any collateral. Easy to acquire, however, the payday loan often comes at a steep cost.
One basic problem with the payday loan is its cost. Consider for a moment the interest rate your mortgage carries. It’s probably between 5% and 8%. Your car loan may carry a rate around 9%. Even your credit card, which is known for charging an exorbitant interest rate, probably charges a rate of about 20%. However, the fee for borrowing money from a payday loan lender is known to be as high as 300%. That’s a pretty hefty price to pay for convenience.
The other big problem with using payday loans is the cycle payday loan borrowers find themselves stuck in. For instance, if your car breaks down and has to be fixed before you receive your next paycheck, a payday loan may seem like a good idea. With little to no paperwork you’ve got the money to get your card fixed, and you can just pay it back when payday comes.
Now, however, the fun really begins. Since you promised your friendly payday loan place that you’d pay them back when you got paid, the first chunk of your paycheck goes to repay your loan and your loan costs. Then, as the next week or two passes, you’ve got significantly less money to run with. Before you know it, you’re out of money again. Since the last loan went so smoothly, you just run back to your payday loan lender and take out a new loan. See how it snowballs?
The best way to avoid this entire situation is to have a little money set aside for a rainy day. When the unexpected happens, and you know it always does, you’ll be able to take it in stride. And, you’ll save all of those payday loan fees.
Filed under: Personal Finance
Agree. This seems like a good option but whatever ever you do – no matter how strapped for cash you are DO NOT take on any further debt, especially this kind of debt. Interest rates or (APR) for these kind of loans are extortionately high, on average 50% sometimes as much as 96% - meaning on a £2000 loan you will pay back in excess of £3700 – in one month.
Charges are usually hidden or not explained correctly and these types of schemes are aimed at people struggling with money – they do not aim to help you, like they suggest, they aim to make as much money off you in as short amount of time as possible.
If you are struggling with debt, find help via the correct channels with sensible, free Debt Help from a reputable debt advice agency who can give you honest, impartial advice and will not charge you excess hidden fees for such services.
Sam
Fix My Personal Finance
http://fixmypersonalfinance.com/
I especially hate it that these lenders prey on young enlisted military personnel. Even before you started to see them everywhere, there were dozens of these places right off post around every military base I’ve ever been at.
It’s rough to make it as an e-1 or 2, no doubt; especially if you have a family. But payday lending is not the way to make ends meet.
The lenders know that if the soldier or sailor defaults, they can go to his/her command(and this can ruin a career, too).
I’m glad that the federal govt has capped the interest the payday lenders can charge on loans to military personnel.
There are millions of people all over the United States and the world who take advantage of Payday Loans. While these are great types of loans to take advantage of, there are definite drawbacks that most people do not realize until they are actually caught up in the Payday loan cycle. Nevertheless, Payday Loans are a great help to many people who use them wisely. Indeed, to use them correctly, Payday Loans can have the best effect on your finances. However, using them correctly and wisely entails knowing when to use Payday Loans and when not to use them.
Before signing up for a Payday Loan, though, you may also want to speak with one of the Payday Loan representatives to make sure that you know how these types of short term loans work. Because you need to usually pay them back by the due date, many companies do not allow for extensions. But if they are used correctly, Payday Loans are a great tool if you know when to use them!
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