Payday loans are risky business! Check lenders and take other precautions before proceeding with payday loans. You could be in debt before you even realize.
Look, it happens to everybody.
Sometimes, cash is in short supply…usually right before a major bill is due, or you need to make a significant life change. This is when it can make sense to consider a payday loan.
Also known as instant loans or pay stub loans, a payday loan is easy to get and doesn’t need a credit check. This is what makes it an attractive option for the cash-strapped. But there are downsides to every financial transaction—and this includes payday loans.
This is why it’s important to check lenders and weigh the pros and cons of payday loans. The quick and easy loan might just end up ensnaring you in an inescapable spiral of accumulating debt.
How It Works
Okay, here’s a brief rundown of how a payday loan works:
A payday loan is essentially an advance against your next paycheck, so you’re required to present proof of employment and a pay stub to the lender. The lender agrees to loan you an amount of money, usually $500 or less, which you’re expected to repay when you receive your next paycheck.
Sounds pretty simple. But the devil is in the details, as they say, and that’s where quick loans can be dangerous. The lender makes money by charging financing fees, which can range from $10-$30 for every $100 borrowed.
The Drawbacks of Payday Loans
If the borrower can’t make the repayment, the loan can “roll over” with additional fees, which can quickly become more expensive than the original loan. This is why payday loans are likened to “debt traps,” further bleeding borrowers of the little money they had to begin with.
With $9 billion accrued each year in loan fees, it’s easy to see why payday loans can be a lucrative business for the lenders. Let’s look at four reasons why it’s a good idea to check lenders and be cautious before taking out a payday loan.
The annual percentage rate on payday loans can be astronomical. This is why these loans can quickly suck the borrower into a black hole of debt that it can be very difficult, if not impossible, to climb out of.
Extremely Short Terms
Typically, you’re required to repay the loan within a very short amount of time. This doesn’t give you much leeway, and can quickly plunge you into debt.
This is why it helps to check lenders, and if you can, go with local payday loans like Captain Cash, which can at least have a somewhat more flexible payment frequency.
In addition to the financing charges, you may be hit with other fees and charges. For example, you may be charged rollover fees and late fees by the lender, and insufficient funds charges by the bank if there’s not enough money to cover the loan repayment.
Doesn’t Build Credit
Even if you repay your loan on time, payday lenders typically don’t report this to the credit bureaus. So it won’t help build up your credit score.
Check Lenders Before You Get a Payday Loan
Ultimately, getting a payday loan should only be considered as a last resort. If you have no other available options, be sure to carefully check lenders and compare their terms and payment schedules.
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