The Trouble with Payday Loans and Debt
If you’re looking for a few hundred dollars to help you pay a bill, deal with an emergency or make an important purchase, payday loans can look pretty tempting. You can get them pretty easily, they don’t usually require a credit check and, in many areas, payday loan places are located all over the place. Many people see payday loans as quick and easy loans that are there when you need them. Unfortunately, they’re not usually good news.
Payday loans may seem convenient and inexpensive, but the costs associated with them quickly add up. Most payday lenders charge about $20 to borrow $100 for a two week period. This might not sound like much, but that’s 20% interest in two weeks. Over a year, that’s a whopping 520% annually!
Of course, most people assume that they won’t need to borrow the money for more than two weeks but, unfortunately, those assumptions usually aren’t realistic. The fact is, if you need to borrow a few hundred dollars in short notice, you obviously do not have any savings or emergency fund. This means that you likely won’t have the money available in two weeks to pay back the loan. Even if you do, there will almost surely be another situation in the near future where you’re short on money again.
Payday loans are a revolving door – one advance leads to many more.
When you get a payday loan, you need to pay it back quickly in order to avoid incredibly expensive interest charges. This can be difficult to do. The reality of the matter, if you need to get a payday loan, you are operating on shaky financial ground. You could be one job loss, emergency or other unexpected occurrence away from financial trouble.
Payday loans are Band-Aids for financial trouble.
They don’t solve your overall problems. They just delay them a bit. They could even cause you greater financial problems if you’re not able to pay back the loan on time. This can be incredibly costly.
Pay backs can be high.
As mentioned, the overall interest rate on a payday loan is very, very high. If you’re not able to pay back the loan in a couple of weeks, you will be looking at incredibly high charges. These costs can be significantly higher than just about any other type of loan, from credit cards to lines of credit.
People will borrow from one payday advance place to pay another one back.
Since payday loans are so expensive if you aren’t able to pay the loan back quicklymany people end up taking out a second payday loan in order to pay off the first one as they are easy to get.. This can sometimes reduce the interest that you’ll need to pay, but the expensive loan still exists. You’re mostly just delaying your problem by doing this. Unfortunately, once you end up getting several payday loans, you may not have any other choice.
If you lose your income – you still owe the money.
Unfortunately, even if you lose your job and no longer have an income, you still owe the payday loan. These loans have no provisions in them to allow for job losses or other such emergencies.
Payday loan companies have access to your bank account.
You have to give them your banking info to get the loan. This means that you’ll have to give up valuable financial data to a company just to be able to get the money that you’re looking for. This isn’t the case with some other types of loans.
Payday loan collections can cause issues.
If you’re not able to pay back your loan, a payday loan company could start calling you to collect. This can lead to issues with your spouse or other family members since these companies never block numbers when calling.
There are other options.
If you’re in a difficult financial situation, you don’t have any savings for emergencies and you’re having difficulty paying your bills, you have options other than payday loans. Speak with a trustee in bankruptcy for more information. He or she can review your financial situation and let you know the options that are available to you.