If you’ve been short on cash in the past, one of the things you might have done is sought out a payday loan. If you have the income coming in to pay off the loan, it can be a good way to help you get through a difficult time. However, payday loans are often dangerous and can get you into deep financial trouble if you’re not careful.
Payday loans are simple, short-term loans. You receive cash on the terms that you’ll repay the loan when you get your next paycheck. Essentially, you can use the loan to get your next paycheck early. You have to post-date a check, sign a contract and pay any applicable fees. Is it worth it, though?
The reason payday loans get people into trouble
Payday loans are bad for several reasons. First, you pay extra on the loan than you get, which means you’ll receive less money from your paycheck than you may want. If you have a smaller paycheck than expected, you’ll have to extend the loan’s terms. If that happens, you end up paying extra fees.
In the case that you’re unable to repay the loan at all, you could be prosecuted for check fraud or other crimes. It’s always necessary to pay off these loans as quickly as possible.
Payday loans have extremely high interest rates
Keep in mind that payday loans have extremely high interest rates. The charges may be up to 30 percent on the amount borrowed, which is normally repaid in one to two weeks. If you think in yearly terms, you’re paying around 800 percent interest on the loan.
The problem with these loans, other than the high interest rates, is that the companies that provide them tend to open in low-income areas. They prey on people who are going through financial hardship. Since these people may not be able to pay back the loan right away, they end up paying high fees time and time again, getting into deeper financial trouble.
The good thing to remember is that there are other kinds of loans you can get if you are in financial trouble that won’t be as costly or dangerous as a payday loan. First, you need to complete a budget and make sure you can afford to pay a monthly payment for the loan. Put as much money into savings as you can each month once you cut unnecessary items from your budget. Taking steps like cutting down on fuel or grocery costs can help you save money, too.
If you find yourself in financial trouble, consider seeking an advance from your employer. A one-time advance is something many employers will provider for employees who are struggling.
These are a few things to remember about payday loans and the alternatives. It’s best to avoid them when possible.