What you should know about payday loans
What are the Cons of Payday Loans?
Payday loans can seem so enticing. A little extra cash in between paydays never hurt anyone right? Wrong! Payday loans are riddled with high interest rates, access directly to your checking account, and questionable lending practices, can easily get you involved in a never ending cycle of borrowing and repaying.
High Interest Rates
Since payday loans are a short term loan they have incredibly high interest rates. Some payday loans have interest rates as high as 300%! You would never accept an interest rate like that for a home or auto loan, why are you accepting it for a payday loan. These loans allow you to only pay the interest off and extend the principle of the loan, and this is where the real problems begin. Doing this can cause a consumer to pay the same $200 loan 8 or 9 times over because they are continually paying only the interest and still owing the principal amount.
Access to Checking Account
The fact that payday loan companies require you to agree that they can take payment directly out of your checking account means trouble for the customer. Forgetting to get an extension can mean an overdrawn checking account as soon as payday arrives. That customer then obtains an additional payday loan and the process is repeated until the checking account is so overdrawn it is closed or the consumer is finally able to make it positive.
Questionable Lending Practices
Payday loan companies have long been questioned for their lending practices. For years they justified their high interest rates, and harassing phone calls as a protection against the sub par clients they lend money to. In the last 5 years there have been laws put in place that require payday loan companies to adhere to the same strict policies that other lending agencies are required to follow. This does not mean however that they are unable to charge incredibly high interest rates or continue to call past due clients repeatedly demanding payment.
Negative Credit
Payday loans are a fast way to earn negative credit. Although these companies do not check your credit to approve you for a payday loan, they are quick to report negative payment history to the credit bureaus. Not only are you struggling to pay the interest on your loan each payday, you are now unable to obtain a traditional loan to get you out of the viscous cycle payday lending has established. The negative credit history will follow you long after the payday loan is completed.
Payday loans may seem like a great way to get quick cash until payday. By the time you consider that you are paying 300% interest or more over the course of a year your short term loan can require you to pay for months before it is finally finished. There are so many alternatives to these high interest, loan shark companies who demand direct access to your checking account. If we keep the dangers and all the disadvantages of payday loans in mind, you should understand that there is no need to ever apply for a payday loan.