5 Reasons to Beware of Payday Loans
A payday loan is a relatively small amount of money borrowed at a high interest rate with an agreement that it will be repaid when the borrower's next paycheck is received. The following is a list of reasons why this convenient option for cash might end up hurting you in the long run.
1. Expensive to Use
Payday loans are extremely expensive. Your most expensive credit card may have an interest rate of 25% to 35%. Payday loan rates are typically issued at rates 10 times higher than that! For example, if a $100 payday loan costs you $15 for 10 days, that’s an interest rate of about 400%.
2. Cause You to Acquire Debt
Because of the high interest rates associated with payday loans, you will most likely end up paying three, four, or even 10 times the amount you originally borrowed. It's been found that the debt created by payday loans will often quadruple in just the first year.
3. Too Easy to Get Started
While it takes time to apply for most other loans or credit cards, you can get a payday loan in minutes, giving you little to no time to think it over or consider other solutions. Payday loans also carry no right of rescission. That means that if you change your mind shortly after you sign the papers you can't back out.
4. Require Access to Your Bank Account
In order to "make it easier for you" they say they will take the money right out of your checking account. You won't even have to write them a check! But once lenders start withdrawing money, it is hard to get them to stop. When the balance has grown and you can't afford to pay it back while still being able to afford your basic living expenses, payday lenders will keep trying to push their payment through your insufficient funds. You may acquire overdraft fees from your financial institution on top of the amount you owe the lenders.
5. One Day You'll Owe More Than You Can Pay
Most payday loan companies are known for their dreadful debt collection practices. These companies mainly deal with people who can't get loans through mainstream channels so they are used to dealing with debt very aggressively when people don't pay loans back as they promised. Given the high-risk atmosphere and high interest rates, it is obviously in a household's best interest to avoid these loans.
Consumers Credit Union offers Signature Loans to get you through the rough times. These are offered at fair, fixed rates with no pre-payment penalties. And you can apply online and be approved quickly! Talk to us about your situation before you visit a payday lender and fall for their financial schemes.