|BEWARE THE PAYDAY LOAN|
|Posted on: Apr. 27, 2017 in Debt, Money|
Drowning in debt is certainly a difficult situation, especially if you’re not able to make even the minimum payments when they are due. There are plenty of “solutions” out there, but many are too good to be true. If they seem too easy, that’s your cue that they probably will come back to bite you later. Often, the end result is that you dig yourself deeper and deeper into a hole that can be increasingly more difficult to climb out of.
One such example is the payday loan.
A payday loan, as the name implies, allows you to borrow money on the assumption that you’ll pay it back, plus a fee and interest, on your next payday. You’d give the lender a persona check payable to the lender for the amount you’re borrowing, plus the fee. The lender gives you the cash minus the fee and holds the check until your payday. If you decide you can’t pay the loan back on your payday, you can extend the loan or roll it over, which is essentially taking another loan.
Many people are attracted to these loans because they generally do not require a credit check. Typically, all you need is an income and a valid ID. Also, many believe they’ll be able to pay it back by the time the next payday rolls around.
Here’s why payday loans are a bad idea. That fee you’ll to borrow is usually very high. It’s often based on a percentage of the amount you borrow. The lender is counting on you not being able to pay it back on payday (presumably because you’ll have bills to pay with that money) and makes it very easy and very expensive for you to extend the loan. Or, if you do pay it back and leave yourself short on cash again, you may opt to take out another. Payday lenders love repeat customers.
The Federal Trade Commission (FTC) gives an example of borrowing $100 for two weeks, with a finance charge fee of $15. If you can’t the $100 back at the end of the term, you can extend the loan for two more weeks for another $15. Extend it one more time, and you’re looking at paying $60 in fees to borrow $100 for only a few weeks. The interest rate on such a loan could be upwards of 400%, meaning that $100 loan could snowball into thousands of dollars of debt before you know it.
In short, run away from payday loans as fast as you can!
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