Don’t become too tempted with using payday loans that you would go ahead and take out one without doing some research first. There is great risk involved with using a short term loan like it that you can get into trouble just by using it.
The Trouble with High Interest
The first problem that you ought to be aware of is the extremely high interest that lenders are charging for quick online loans. This makes payday loans quite possibly the most expensive financial product that is available today. In most places the lenders have a free hand with the amount of interest that they can charge and they take advantage of that to the hilt. They are known to charge 300% or even up to 600% of the principal amount when computed on an annual basis.
The problem is that the lenders are not confronted with that kind of percentage. They learn about the interest in the form of fees that the lenders are charging, since the terms for cash advance loans are normally very short and only last for two weeks up to a month. But if you miss any payment for what you borrowed then you are supposed to be punished with additional charges. If you extend the term, you should expect to pay more in charges which should be enough of a payday loan warning.
Keep on Borrowing
Should you find it difficult to pay back your loan, you might be tempted to borrow again. There is a real danger in that happening since there are no restrictions set in place that would limit the number of times that you resort to using a payday loan.
A lot of people take out new loans in order to pay off the old ones. It can become a cycle where you could end up being deep in debt. Once you are in a loan trap, it would be very difficult to get out of it.
Other Drawbacks of Short Term Loans
Cash advance loans have some other drawbacks that you ought to know about as well. One of those is that the amount that you can borrow is very limited. If you need the money for some expensive project, then it would be best if you can turn to some other source of funds. Quick online loans would not help you out at all.
We also mentioned the fact that you need to pay back this kind of loan right away. Usual terms last from two weeks to a month. In most cases periods like that would not be enough in order for you to come up with the amount to pay it back in full.
Others might see the lack of requirements and documentation as very good signs for borrowers but in this case it can cause more harm than good. That’s because it might lead a borrower to throw caution to the wind and start borrowing even if there is no real need for it. Soon they might find themselves dependent on costliest loans just to meet their basic needs.
A Revolving Door of Debt
Perhaps the saddest thing about payday loans is the way that their users count on them as if they were a blessing. They look towards the loan as perhaps the best solution to their lack of cash. The reality is that it does not work that way. It might take care of their short term problem which is the lack of cash but when it comes to their long term consequences direct loans can cause more problems. They can cause the borrowers to be trapped in a revolving door of debt that would have little hope of being stopped.
The Typical Borrower
Studies have shown that the typical borrower uses the financial product multiple times each year. We mentioned the fact that there is really no limit to the number of times that a consumer can borrow and that feature is what causes the most problems together with the lack of requirements.
Options to Consider
If you are seriously considering the use of a payday loan, then you should stop and think about that for a while. All the facts that we have pointed out so far show the sobering reality that you could end up with a great deal of debt. But if you don’t have any alternatives then there is little that you can do. Here are some options that you can try as opposed to a payday loan.
- Short term loans from credit unions
- Contacting your creditors for a payment arrangement
- Using a credit card
- Borrowing from a friend
Borrowing from a friend or a relative is probably the simplest and best way of resolving cash shortage. That way you would not have to worry too much about missing the payment. A credit union is also a good source of a loan because the company is not out to profit from your loan. It would be there to help you out.
Now, most consumers would not think of contacting their creditors but that is a very good move if you are having problems with coming up with the payment. You just have to do it well ahead of time. A credit card is really not the best move but, in emergency cases, it would be better than taking out a payday loan. The interest on a credit card would still be much lower.
Inevitable Cash Advance Loans
There are cases however when taking out a payday loan is going to be inevitable. In those cases you should study the terms and conditions of the loan. You have to fully understand what it is that you would have to pay back and how much it is that you have to pay. Most people end up in trouble because they do not fully grasp what it is that they are getting into. Don’t make the same mistake so you don’t end up like them.