What are the Cons of Payday Loans?
While payday loans might seem like an easy way to get cash quickly, they can cause severe problems for those who take out the loans. When considering taking out a payday loan, you need to understand all the potential consequences you could face.
Here are some of the problems that consumers have seen with payday loans and the lenders who provide them.
1. Payday loans come with a high price tag. The lender will typically charge between $15 and $30 for every $100 you borrow. So if you take out a $1000 loan, they expect you to pay back the $1000 plus $150 to $300 more as interest. When you average that out, it comes to over 400% in annual interest. Even the worst credit cards only charge 30%.
2. Payday loans can become debt traps. You might think you can repay the payday loan on your next paycheck. But, if something happens, you might not be able to. If you take out a loan of $500 with a $100 interest charge attached, the loan company wants at least the $100 on that paycheck. If you cannot pay it back on the next paycheck, they want the $100 again. The $500 is still outstanding. For people in financial trouble, it can become a massive problem.
3. Payday loans are deceptively easy. Many payday loan companies make the process extremely easy for anyone to come and get money quickly. They make it as easy as possible. That simplicity actually covers up the fact that the person borrowing the money likely has no idea of what they have actually agreed to.
4. Payday loans take advantage of people who are already in financial crisis. Typical lenders use precautions when lending money. They want to check credit and make sure the person can pay the loan back. The payday lenders do not care if the consumer can pay the money back or not. They just want to collect their interest fees.
5. Payday loan companies have a reputation for working around legal restrictions. Many states have put regulations in place to keep the predatory lending practices of some lenders to a minimum. However, the loan companies have worked to find loopholes so they can continue making huge amounts of money from those least likely to afford it.
6. Payday loan collectors have some reputation for using illegal tactics. While not all of the collectors are in this category, some are. All consumers have basic protections against unscrupulous collectors by both state and federal law. But, these collectors seem to think those laws do not apply to them. They use brutal tactics to try to scare money out of consumers already in financial difficulty.
Some may say that the ability to get cash quick and easy outweigh the disadvantages. But, there are plenty of other methods for raising cash even in emergencies.