Payday loans may sound enticing, especially when you are in the thick of an emergency. All you know is that you need money now and payday loans offer quick funding. But, what you may not know are all of the disadvantages these loans offer.
Today there are many alternatives to payday loans. Check out the reasons you may want to consider them.
Payday loans are one of the most expensive ways to borrow money.
Not only do you typically pay higher fees to get the loan, but the APR is also nothing compared to your alternative options including credit cards. You’ll find payday loans with APRS equivalent to 300% - 400%.
On average, borrowers pay $15 to $30 for every $100 borrowed. On a 2-week loan that is the equivalent of 400% - 700% interest.
Payday loans are ‘short-term loans.’ By short-term, they mean typically two to four weeks. They usually tie the due date in with your next pay date as the payday loan is meant to be a bridge between your paydays. The problem is that most people can’t afford to pay back the loan plus the high fees, leaving them in a similar situation that the payday loan was supposed to stop.
If you can’t pay back your payday loan in the short two to four-week cycle, you end up in this ongoing (never-ending) cycle.
When you can’t pay back your first loan, you may apply for another loan or refinance your loan as many lenders offer. This leads to more fees and more interest.
Rolling your loan over every two weeks, like some lenders offer accumulates fees in excess of what most people can afford since they took out the payday loan to cover basic expenses in the first place.
If as a part of your agreement, you give the payday lender access to your checking account, they may withdraw funds even when you can’t afford it. They’ll keep pushing through withdrawals until they are successful. This means you may be subject to excessive bank fees for every overdraft attempt.
In addition, if they are successful in taking your funds, it could leave you without funds to cover your other bills. This may result in late fees or overdraft fees on those accounts as well. This leads to a never-ending cycle of debt, which most people take out payday loans out for in the first place.
Consider payday loan alternatives - SimpleDirect and its personal loan lending partners partnered together to offer alternatives to payday loans. These loans generally have lower rates, have a fixed monthly payment and can be paid out in years and not weeks.Compare Personal Loans
This may sound like a benefit – who wants to jump through hoops to get a loan, right?
But, it doesn’t give you time to think. It’s a knee-jerk reaction. You know you need money and you know you can get a payday loan in a matter of minutes in some cases.
Once you take it, there’s no turning back. You need the time it takes to process payday loan alternatives to think about how the loan will affect your finances now and in the future.
Strongly consider your payday loan alternatives. Even if the approval process takes a little longer, you’ll save greatly in interest, fees, and stress.
You’ll still get the money you need to cover your emergency or expenses, but without the added expense and financial distress payday loans may cause.