Most of the time, an average American will require additional funds to pay bills. With the economic situation, fluctuations in the employment market, as well as financial uncertainties, a lot of people are trying to cope and manage themselves to make ends meet. Due to increasing debt in various places, along with maxing out their credit cards, most people are left with little or no option in terms of borrowing cash. With auto loans on one hand and mortgages underwater, most people do not want to apply for another bank loan, resulting in a piling up of loans. So, where do they seem to turn to? This is when they result in taking out a payday loan.
Initially, taking a look at payday loans might seem quite appealing and attractive, as they are very easy to come by. A payday loan refers to a short-term loan that is mostly for a small amount of money but comes with a very high interest rate that must be settled by the next payday. And defaulting on repaying such loans can result in harsh legal actions. In times like this, there are various online payday lenders that grant you access to quick cash. Since it is a convenient way of getting cash, as it requires no credit check and no application process, it is a very fast way of getting into financial challenges. Before going ahead to get a payday loan, you should take time to consider these reasons as to why you need to avoid payday loans.
How Payday Loans Work
The process involved in getting a payday loan is quite straightforward, but when you default on making payments, that is when you begin to have serious financial difficulty. Although payday loans are not legal in some states, if it is legal and you plan on getting one, you can usually apply for it at a physical store, or you can get it online. In order to apply for a payday loan, not much is actually needed. Unlike other financial institutions that require them to check your credit score when applying, payday lenders do not actually run checks on your credit history. Most of the time, all you need is your verification of a checking account, your ID, and proof of your source of income.
When your loan is eventually approved, the requested amount is then deposited into your account through direct deposit, check, or even cash. However, one thing to note is that you are expected to pay back the loan on your next payday. To pay back your payday loan, you will need to write your lender a postdated check that corresponds with when you will be receiving your next pay. And the amount written on the check will be the entire amount of money owed, as well as the interest added and all other fees attached to it, including finance charges and lots more.
Reasons Why You Should Avoid Payday Loan
Payday loans tend to seem quite convenient, but there is more to it, as there is a huge price to pay for something that comes too easily. Therefore, in order to avoid getting into a serious situation with payday loan lenders, below are some of the reasons why you need to avoid taking a payday loan:
Most people seem to think that credit card loans have a pretty high interest rate. When you compare the interest rate of a credit card loan to that of a payday loan, the interest rate for the payday loan eventually tends to be higher. Although the loan might start off as a short-term loan, looking at the total amount of money you end up paying in interest is definitely not worth it. Take note that all of the transactions taking place between you and the lender will be through direct deposit or e-Money transfer. As a result of this, they are able to gain access to your bank account upon assessing their extremely high interest rate.
One of the major challenges with payday loans is that people who take out these loans are unable to eventually balance the payment in full at the end of the pay period. Therefore, rather than defaulting on their existing loan, the best option for them is to renew it so as to buy themselves more time.
Direct Access to Your Bank Account
When you go to a lending company to apply for a payday loan, most of them tell you about the convenience that comes with them simply debiting the money directly from your account, rather than you having to go to the bank. All you need to do is just input your account details. Now, payday rolls over and your total balance keeps increasing. You are unable to settle the payment, and your daily expenses are there to pay. Even with this, since lenders have direct access to your bank account, they will continue to run their payments through.
Horrendous Debt Collection Practices
When the due date for payment comes and you are unable to repay your loan, you should be ready for a lot of embarrassing encounters coming from the lenders, as they are known for their atrocious ways of debt collection. From late-night calls to endless threats of charging you with a criminal offense. They make use of various other debt collection techniques that will leave you in a bad condition. However, if you are having issues with your payday loan, you can use debt settlement to take care of the loan when it becomes unmanageable for you.
Hidden and exorbitant Fees
In the same way that there are various hidden bank fees, the same goes with payday loans. For every $100 borrowed from them, a $17.5 charge will be assessed by the lender. These fees are also added to the initial loan capital and interest rates. This has made payday loans quite an expensive way of borrowing cash. Before eventually borrowing money, ensure that you read and understand the fine print very well.
Infinite Debt Cycle
There are two basic categories of people in the payday loan debt cycle. The first category is an individual who continues to remain in debt for an extended period of time due to the interest rate and high fees on their loan. As a result of this, they get hooked up in an unending cycle of extending the loan for an extended time frame. While the second category is for individuals who tend to take out another loan just to settle existing payday loans. When the due date to make payment comes, they apply for another loan and pay off their initial debt. And the cycle just keeps repeating itself.
The secret to financial freedom is in your ability to plan and budget your money properly in order to cater for any urgent needs that might arise during the course of the month. Borrowing payday loans to settle day-to-day expenses is not a good idea to consider. If you are already in any form of debt, you can make use of debt settlement to take care of payday loans. Also, you should know that there are various other ways in which you can get a loan that will not cause you financial ruin in the long run.