Many consumers have a hard time making ends meet. They spend their lives living paycheck to paycheck. Because there is no savings plan in place, the first time there is an emergency; they are scrambling to figure out a way to pay for it. If your vehicle breaks down, your child needs braces on their teeth, or your spouse has recently lost a job, you may feel that you need a quick fix. Payday loans may sound like an easy way to handle a financial emergency, but at some point it will cause more problems than what’s it is worth. Here are some of the dangers of payday loans:
1-Excessive interest rates-Would you give someone more for a television than what it was worth? That’s exactly what you do when you borrow money from a payday lender. Their interest rates can range anywhere between 100 to 600 percent, in some cases even more. For example, if you borrow $100 for 2 weeks, the repayment could be $123. Calculated over a short period of time, this interest rate is considered astronomical. This only gets you further into debt.
2-A Vicious Cycle-As soon as you get your next paycheck, your payday loan is due. You may be unable to pay the full amount back and pay on your regular debts as well. You may end up having to borrow the money again and again to keep your head above water. This type of debt cycle can go on for many years before you are able to pull yourself out of the hole.
3-More Debt-If you are already bogged down with debt, getting a payday loan only adds to the pile. By continuing to borrow this money, you have actually made your financial situation worse. The business is happy to keep lending to you because they continue to make money. You are the one that continues to lose in this situation-lose money.
4-Credit Problems-When you borrow money from secondary lenders, it hurts your credit. If you are unable to get the loan that you need from a bank or other credible loan company; your credit can be negatively impacted. It’s more important for you to slowly begin paying off your debt, than hurting your credit by borrowing from this type of lender.
5-Stetching the Family Budget-By taking out this type of loan and continually reinstating it; you destroy the family budget even if it’s tight. Instead the money helping you get through an emergency, in the end, you may find yourself trying to figure out how you will pay your rent or buy food for the family.
During tough times, payday loans make look like a great option. The reality is that by borrowing money at these high interest rates, you only make your situation worst. Start saving money today, even if you are only able to save small amounts at a time. This way when an emergency arises, you will be able to handle it. If you have to borrow money, try going to your bank first. They will give you the best terms and interest rates. You can get through your emergency if you plan ahead. A payday loan is not an answer; it will only create more problems.