I would sometimes say that payday loans are a debt trap. Payday lenders tend to misuse desperate individuals who are looking for quick financial help.
Can you imagine having to pay close to double the loan amount after two weeks? Of course, it doesn’t make any sense. But it makes sense to payday lenders, and they don’t care about it.
The payday lenders defend themselves, saying that the high cost of the loans covers the bad credit individually. But I would say that’s a lame excuse and that they are using desperate individuals.
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What is a payday loan?
When I say a payday loan, I mean the kind of loan you take and pay back within two weeks. Not forgetting if you skip the first payment, the lender will double the interest. However, the loan is unsecured, so the lender cannot take any of your properties in the name of recovering payments.
The payday loan borrowers usually have dismal credit scores, and that’s another reason the lenders use to take advantage of them. The lender knows that you have no options and you need fast cash.
And that’s how they exploit you with the high interest rates. The rates often start from an APR of 390%, going upwards. And that’s typically high compared to standard loan rates or around 10% to 30%.
The common disadvantages and pitfalls of payday loans
Very high-interest rates
This one is the biggest pitfalls of payday loans that has a more significant effect on the borrower. The lenders charge you a whole year’s interest for a loan that you will repay in 2 weeks.
And that’s not fair at all. Like I said earlier, the lenders hide behind loan defaults to justify the high interest rates.
Short repayment period
You will have to pause your monthly budget to create a room for a payday loan. To be precise, the payday lender will even deduct the payment from your account before you can access a single penny.
To make the matter worse, the lender needs the total amount of the loan plus the interest all at once. There is nothing like split payments-not with payday loans!
Apart from catering for grocery bills, car repairs, or vacation, there is nothing much you can do with a payday loan. So you get a tiny amount of money that you cannot do a significant project with it.
It’s a possible debt trap
In most cases, after you take a payday loan for the first time, you will keep on paying and borrowing once again. That means that unless you get more income streams, you will end up in a debt trap and possibly default. Yes, that’s how a payday loan can ruin your financial life.
In addition, the lender will be enjoying that you are paying the interests. After all, that’s how they make money from desperate citizens.
Better go with Debt Solutions Services
If you thought of defaulting on a payday loan, then take that thought out of your mind. I’m saying that because the lender will forward you to debt collectors who call you and your relatives. Debt Solutions at reformdebtsolutions.co.uk is one such amazing provider that can always be stand by your side.
In addition, you will get several arrests threats regardless of your Financial situation. Furthermore, payday lenders don’t listen to you in case you need a restructure.
Payday loans can hurt your credit
Payday lenders do not check your credit score when lending you money. But that doesn’t mean defaulting does not affect your credit score. If you default a payday loan, the lender may opt to deposit checks every time, and every bounced check translates to more bank charges.
In addition, payday loans do not portray a good picture of your credit history. Other lenders will take that negatively, and they may deny you loans.
You need at least a $1000 salary every month
Having a paycheck lower than $1000 means that you cannot get a payday loan. So, you cannot sort out your emergency with a payday loan for that case. And that means you will have to suffer a bit more before your next paycheck.
Not mentioning those with no jobs at all, there are no payday loans for them. That means that payday loan lenders are very selective when giving out loans.
The secret of staying away from loans is creating multiple income streams. Please do not depend on only one source of income because it’s dangerous. In addition, consider saving some money that you can use in times of emergencies.
Also, if you have any unpaid loans, focus on repaying them in full and build your credit score.