The Problems with Payday Loans
As more people get on the straight and narrow when it comes to personal finances, many more are still happy to remain trapped in the dregs of debt by making the same mistakes over and over again. One source of the vicious cycle is the payday loan. I nearly spit out my drink when I realized these scam businesses are now making it even easier for people to go head over heels in debt by allow the application process to happen online within just minutes.
The Origin of the Payday Loan
Payday loans are named as such because companies lend you money based on your next paycheck. You only need to be 18 years old, employed, and have a bank account. There is no need for a credit check because you essentially guarantee repayment within two weeks by writing a check in advance for the amount owed. When you get your paycheck, you repay the loan. Sometimes these loans are also known as “payday advance loans“. Essentially the lender is giving you money in advance of your pay. Provided you can prove you make $1,000 or more from your employment, you are eligible for the advance. Typically, most payday lenders give you the cash on the same day.
This is all well and good for those who are in need of cash for an emergency. It seems like a no-brainer that you can sign off on the agreement with the payday loan company and get cash on the spot without a credit check. However, as the old saying goes “if it looks too good to be true, it probably is.”
Payday loans can be a means to an end for some folks who are in a temporary bind but they will end up paying big time for the action. For those who are already broke without any means for getting out of debt, a payday loan can spin a vicious cycle that may become impossible to get out from underneath.
The Problems with Payday Loans
While quick cash is a plus, payday loans make you pay dearly. The interest rate tacked on to the principal amount borrowed can be upwards of 400%. That means you are responsible for paying the amount you owe back plus almost as much in fees. For some borrowers, the additional fees and APR means they are turning their entire paychecks over to the payday lender, leaving no chance for people to recover from debt.
Not all payday lenders have such high interest rates but in general, those who are borrowing for financial problems will end up paying a lot more than they should be. Sadly, a lot of the consumers receiving payday loans do not understand the consequences of the quick cash. They fail to read the agreements they are signing or they are deceived by the advertisements of lending companies.
Because the application requirements are so minimal, people who shouldn’t be applying for these kinds of short-term, high-interest loans are exactly the people signing themselves up for cash. Now that these kinds of loans are available online, there is no telling what will happen to consumers who are not only taking these loans but dealing with less-than-reputable virtual companies. Finding a business that is completely on the up and up is not always easy and since many payday loan companies are not properly regulated, consumers may be headed for big time trouble. Those seeking fast money out of desperation will likely fall victim to these high-priced loans because they feel it is there only alternative.
Finding the Alternative to Payday Loans
Facing your debts head on is the only way to deal with the situation. Running to a payday loan company will only exacerbate your problem. To stop the madness, you need to find alternative ways to solve your money problems. Here are some ideas to help you handle your money issues.
Stop Payday Loans
If you are currently living in the cycle of taking one payday loan after the other because you can’t catch up, you need to stop immediately. Fulfill your obligations and end the relationship with the lender.
Negotiate Your Debts
If you are taking loans to pay off debts or bills, it will never work out. Instead, contact your creditors directly and explain your situation. You can speak to a manager and ask to establish a payment plan due to hardship.
Not all creditors will agree to help you out but some are willing to work with you as long as you are upfront and honest with them about your financial situation. You cannot run away from your debts. You can only make the problems worse by avoiding the issues.
Debt Assistance
If your payday loan cycle is serious, you may need professional help. There are plenty of free credit counseling offices that provide resources and help for dealing with serious debt issues. They can teach you how to better manage your money, start saving for emergencies, and keep up with your financial obligations more efficiently. Don’t let pride stand in your way of getting help.
Related Posts
No Comments on “The Problems with Payday Loans”