Be Careful with Payday LoansIf you are experiencing financial problems it may be tempting to get some quick cash using some type of payday loan. These loans go by many different names- payday loans, cash advance loans, payday advance loans. But no matter what they are called, they all are similar in how they are marketed to consumers.
For the most part, payday loans are considered a form of predatory lending. This means that these loan companies generally target specific types of borrowers. These include:
- People with low income levels
- Single mothers
- Individuals with bad credit
Payday lenders realize that many of these people have no other source for cash so they are able to charge extremely high interest rates and fees for the loans they provide.
Payday loans can be a financial lifeline when you are in need of quick cash for an unexpected money emergency (such as an unplanned medical bill or car repair that can't be put off). However, these loans are short-term loans. Generally they are meant to be fully repaid within two weeks (or your next payday). If you are certain that you will have the funds to repay your loan within that short amount of time, a payday loan may not be a problem.
Unfortunately, people who are able to repay their loans within the two week period are few and far between. Payday loans can have annual interest rates of 400% or more so when a borrower has to continuously renew the loan it can lead to a debt trap which may go on for weeks, months and even years.
Here are some warning signs of predatory payday lending:
- Repayment is Due in Full in only Two Weeks.
The actual time allotted for repayment can vary from one week to one month with two weeks being the norm. For most borrowers this is an unrealistic time-frame in which to repay a loan. They then are caught in a cycle of debt which repeats itself every two weeks. In the meantime, fees and interest charges are accumulating at a very high rate.
- Checking Account Funds Are At Risk.
Payday lenders secure the loans they give by keeping a personal check from the borrower for the amount of the loan, plus any fees and interest. When the loan is due, the lender deposits the check to collect the funds. (In place of a check, some lenders ask for electronic access to your checking account which you are required to provide.) If you do not have sufficient money in your account to cover the check you will most likely be charged a non-sufficient fund fee and other possible charges by your bank. In some circumstances, your bank might close your account altogether.
- A Never-Ending Cycle of Debt.
It is very easy to get caught up in an overwhelming cycle of debt which is extremely hard to overcome. Two weeks is not a long time to accumulate funds to repay a debt. Here is a fact which proves how difficult it is to break this cycle of debt-payday loan borrowers average nine loans per year with the same lender.
In today's tough economy, most people are feeling the financial stress of having too many bills and too little income. When you add in the rising prices for everyday goods such as food, clothing and gasoline, making ends meet is getting harder and harder for the majority of Americans.
For many people who suddenly need an extra $200 to see them through until payday, the idea of a payday loan is very appealing. There is no credit check required and the funds are usually available within twenty-four hours. But the reality is that the high costs of these loans usually worsen a borrower's financial problems rather than alleviating them.
Give careful consideration to your personal situation before accepting a payday loan. Here are some options you may want to investigate:
- Ask your employer about an advance on your salary.
- Talk with a trusted friend or relative to see if they could loan you the money.
- Sell items you no longer need or use (either on the internet or at a yard sale).
Every decision you make regarding your finances has long-reaching affects on your overall financial security and well-being. Don't risk being caught in a cycle of debt which can trap you for months (or years) and can wind up costing you a fortune in interest charges and fees (for a simple $100 or $200 loan). Don't jeopardize your financial security by making a hasty decision. Explore all your options.