No matter how we look at it, getting a payday loan is never a good idea before a credit crisis, during a credit crisis or after a credit crisis. Payday loans are never a good answer to a financial crisis as it is expensive and often predatory.
Basically, payday loans are short term-debt that can be obtained easily without the need for collateral. They may seem helpful at first, but in the long run, you might realize that it could be the worst decision you have ever made.
In many cases, borrowers have to repay for the amount they have borrowed plus the loan fee which could be as high as the amount they have borrowed. More often than not, payday loans offer unreasonable and relatively high interest rates, fees and penalties which lead borrowers to file for a complaint with government agencies against money lenders.
Payday loans are easy to acquire regardless of your credit rating. They may seem beneficial at first but there are a number of good reasons why you should stay away from taking payday loans. For the convenience it provides in the short term, borrowers have to pay for a hefty sum of money.
Why It’s A Bad Idea
First, this type of loans comes with a very high interest that can easily drain your resources. The interest of annual payday loans can go as high as 300% and for every 1-2 weeks, the lender increases the charge. Furthermore, payday loans are definitely easy to renew thereby leading a borrower into the pitfalls of paying twice as much as his original loan.
Getting a payday loan could be the start of your financial crisis. For instance, an emergency came up which leads you to acquire for a payday loan. You promise the lender to pay for the amount you borrowed on your payday. When salary day comes, a great chunk of your pay will be taken by your payday lender.
It leaves you with a little amount to spend for you and your family’s needs. What happens next if you run out of money? You’ll definitely go to your payday loan friend’s place and obtain a payday loan again. This gets the ball rolling. In the long run, you might be surprised to see yourself trapped in a cycle of payday loans which is difficult to dig yourself out of.
Undeniably, payday loans provide immediate relief to borrowers who are facing a financial crisis at the present. However, when loans are not paid off on time, lenders may suggest for a second loan with an interest of 200%-300%. In some cases, interest rates may be over 500%.
It can be very hard to get out of payday loan debt.
Take this case. You borrowed 1000 and promise to pay off 1250 after two weeks on your payday. Imagine the things which you could have done if you have an extra 250. You family will definitely be happy to be treated in a sumptuous dinner or you could have saved a huge sum of money for emergency purposes.
If you do not have 1250 cash on hand, what will you do? What will lenders do? Lenders can be generous enough to you to extend your loan but on one condition. You will be charged with another 250 for the next two weeks. This simply means that if you cannot repay the loan on time, you will find yourself trapped in a cycle of payday loan in order to survive financially.