Many people dive into borrowing payday loans because they are on the brink of a financial crisis. In this article, you’ll know why you should avoid payday loans if you have other options.
There are a lot of payday lenders in the market today. They are like a temptation for people who need instant cash because they can easily get it even without a credit score.
It is easy money. You can get it fast but the problem comes when you need to pay it. You can be in deeper financial trouble if you aren’t careful.
These are 5 reasons why you should avoid a payday loan at all costs:
1. It comes with high-interest rates.
One of the top reasons why you should avoid this unsecured loan is because it comes with very high-interest rates. The annual percentage rate is 400 percent which is higher than credit cards and personal loans.
For every $100, the fee can range between $15 and $30. If you borrow $200, the lender would take $230 on your next paycheck.
Although the loan can provide you cash when you need it most without a credit check, the problem starts when you need to pay it in your next paycheck.
In reality, most borrowers aren’t able to pay it because of the high fees and charges. The money you borrowed must be returned in two weeks plus the interest.
What happens is that, instead of fully paying it, they end up having a rollover. Rollover is paying only the interest and renewing the loan. In worst cases, they default on the loan that gives them a much bigger problem.
2. It is so easy to get it.
Although you need quick cash, getting this type of loan gives you no time to think about it. This means that you can get cash within the day.
This scenario can be problematic because it gives you no time to consider other options. Another thing is that you cannot take back your decision once you have applied. If you don’t want to pursue it but you already applied, you don’t have any choice but to get the cash and pay it.
3. It can trap you into the debt cycle.
Getting this short-term loan is very exhausting. Paying the loan after two weeks can be very difficult if you are a struggling employee who lives paycheck to paycheck.
Of course, you need to pay expenses and bills each month. What if there is an emergency expense the same month? How can you pay your loan that amounts to your paycheck?
This is not a rare case because almost borrowers are trapped in debt once they borrow a payday loan. Instead of paying it, they end up a rollover or default. Others take other loans and another leading to more serious financial difficulty.
If you aren’t going to handle it wisely, the lender could take out cash from your bank account until it reaches zero. If this happens, the bank could charge you of large fees for an unauthorized overdraft.
According to the Center for Responsible Lending research, 76 percent of the loans are used to pay old payday loans. It also showed that instead of paying it within two weeks, borrowers aren’t unable to pay it and extend it until half of the year.
4. Lenders have access to your bank account.
One feature of getting this kind of loan is that it gives lenders the authority to access your bank account. Automatic deduction from your account means that it continues to deduct until your account is zero.
If you can’t pay them anymore from your account, you can be charged with overdraft fees from your bank that keeps you more in the debt cycle.
5. It can lead to unhealthy financial behavior.
Getting cash when you don’t have the capacity to pay is a sign of unhealthy financial behavior. The short-term loan that gives you a quick fix can give you a long-term problem.
If you are not going to manage it well, it can lead you to troublesome unhealthy financial habits. You can end up borrowing a payday loan then exhaust your credit card, and getting more loans from other sources.
The Content is not intended to be a substitute for professional medical advice, diagnosis, or treatment. Always seek the advice of your physician or other qualified health provider with any questions you may have regarding a medical condition.