Payday loans have had bad press for long for being an expensive choice. Additionally , a lot is reported about them being misused by the lenders to draw money out of the pockets which aren’t really oozing with money in the first place.
This doesn’t mean that the entire industry (which is flourishing by the way) is deemed to be a choice never to go for, in fact it is one of the easiest sources of short term loans and given that aid the borrowers in various aspects.
However, with all the benefits it provides to the society in general, payday loans are a scary option for many—depending on their financial situation and general circumstances. And with that, one may enter the arena of danger which is a part of the payday loans just like any other method of borrowing.
1. You may not be able to afford the payday loan you aim to acquire
When applying for payday loans, one should simply never ignore the cost. The high interest rates are often debated upon, because the interest would escalate in case the loan is rolled over and extends for a long period of time.
The problem is that it might become inevitable for people to roll it over because of the very short time-span given for the repayment of the loan. The time period along with the interest rate of about 15% on the loan results in the total cost to be much higher than what it initially sounds, and that makes it a super expensive choice. It is better to calculate your expenses and have a close look at your budget before opting for a payday loan so that it actually benefits you and not sabotage your finances.
2. The vicious cycle may encircle you
Deferred payments lead to a repeat cycle of loan, which never seems to end. Often regarded as a myth about payday loans, getting caught in the cycle of loans repayments is true to a certain extent. When the borrower is unable to pay back the due on time, there could be a need for yet another loan for the payment of the first one, and so on.
Some of the payday loan operators go for a good database to structure the payment procedure and avoid loan rollovers, but then there is the other side of the picture too. A large chunk of loans are sanctioned for the purpose of paying off old debts, which means escalating amounts is are very likely scenario, causing the borrower to get caught up in simply repaying the loans for a long time.
3. The debts rise beyond one’s control
The cycle of repeat loan applications lead to another major danger of payday loans, that of the debts mounting to a level which is often beyond the control of borrowers to pay off at all, let alone in time. The rising debts are not only in terms of payday loans that is a danger, but also one may start selling off major property and assets for the repayment and it actually leads to some of the very serious social consequences such as suicide, etc.
4. There could be some shady business going on
Ever wonder why payday loans are often known as easy money? It is not that all of the payday lenders are working with money that is illegal or anywhere near, but there is a chance for that happening if it isn’t a registered and known source you’re hooked to.
Given the fact the lenders do not ask for the credit history or score and any type of records of the borrowers, which often brings many of the shady money lenders into the business of payday loans and it could be detrimental to one’s records later. It is better to go for the trusted sources of payday loans and ensure you aren’t caught up in some unlawful activity or that your money might not be used somewhere you don’t want it to, dragging you into it.
5. The access to bank account could be a major drawback
Some of the payday lenders require you to let them gain access to your bank account, this way you won’t have to write them a cheque but they’d be able to draw the amount due out of your bank account right away. This does not seem to be a danger if you are able to pay the payday lenders in full on the right time as per the plan. However, when there is payment default on your part because of a delayed pay cheque for any reason, you will be receiving bank overdraft fees as well. Not a good picture, right? It is better to limit the access of payday lenders and even better to keep it to cheques paid on time.
6. The scary debt collection
If debt collection personnel always gave you nightmares, payday loans must do the job as well for some of the agencies have horrendous practices that leave a person with very little options to deal with it. Harassment, verbal or physical, bad mouthing about you to the neighbours, calling in the middle of the night, or visits in wee hours and any types of threats all accumulate to the unethical practices adopted by some of the payday lenders. However, the good news is that the borrowers can always report if such cases occur and use the protection of fair debt collection practices providing guidelines of what is acceptable and what isn’t.
If you think your credit score is being affected due to the extended loans or delayed payments and other related concerns, which a payday loan may bring, you can always limit your borrowing amounts to those you can afford. Also, it is of utmost importance to look for payday lenders which are both reliable and providing you with all the details pertaining to the payment process and interest additions so that you know what you’re getting yourself into.