Payday loans are short term loans designed for employed persons. These loans prove to be attractive to most borrowers due to relaxed laws on borrowing compared to conventional loans.
Have you ever been in a financial mess that the only option was a payday loan? Think of the application process — quite fast, the same as receiving the money. The main hurdle comes in the interest rates and the repayment period. Since the loans have less stringent rules, the interest rate is high. You will also attract penalties if you fail to repay in time.
Let’s unveil some facts about payday loans.
The Perpetual Cycle
Payday loans can be addictive. Every time you feel you need some little cash, you have the option of applying for a payday loan to repay in your next paycheck. The fact that they are easily available becomes a trap for most borrowers. Additionally, you can repay the loan and reapply on the same day.
If you don’t have the money to repay the payday loan, you can also opt for a roll-over of the loan to the next paycheck after paying the interest for that month. Due to these features, most people never get out of the trap of ever borrowing.
Short Repayment Period
One main disadvantage of a payday loan is that they are only available for a short term; mostly one month. Interestingly the interest may be charged per day, weekly or biweekly.
The short repayment period and the high interest charged on these loans lead to many individuals defaulting on these loans and attracting penalties. If not most people will roll-over the loan to the next paycheck after paying the interest for the current month.
If you have a poor credit score and you can’t access bank loan, then getting out of debt or improving your credit score becomes a dream.
Though payday loans have a few advantages, most lenders hardly take their clients through the disadvantages of these loans; they only major on the benefits of securing payday loans. They’ll never disclose options that can make the customer opt for other types of loans. When you default on the loan, it’s when you discover you were not sufficiently apprised about the loan.
Before applying for a payday loan, make sure you know what you’re getting into. If you have alternatives such as the credit union, advance cash on your credit card or a bank loan go for such options; they attract fewer fees through the rules governing the loans are stricter.
Payday loans are easy alternatives for many individuals, especially if they have a poor credit score or they have over-borrowed. But before opting for a payday loan, get adequate information about the loan beside the benefits.…