DANGERS OF PAYDAY LOANS

As with any type of loan product, if not used correctly, payday loans can be very dangerous. Payday loans are designed specifically for solving short-term financial needs. Typically, these types of loans should not be used more than three times/year. However, over 70% of consumers abuse payday loans by utilizing them as an overly expensive line of credit.

Proceed With Caution When Utilizing Payday Loans
Payday loans are an excellent financial product for those consumers that are in need of some fast cash for unexpected situations. But if they are used too frequently and not wisely, they will most definitely cause more damage than relief. When a borrower repeatedly takes out payday loans, they are tacking on an extra premium onto their salary. According to a study by Vanderbilt University, 20% of consumers utilize a payday loan once/year while 12% take out two and 10% three.

The concern lies with consumers that take out more than 10 payday loans/year. Because of the high interest rates associated with these types of loans, these troubled individuals fall into a vicious cycle of having to use one payday loan to pay offer another and so on. This is commonly known as the 'payday loan trap'.

Consumers that take out 10 or more payday loans in one year's time are probably paying at least 600% in total interest.

The above number is not as bad in comparison to the compound interest associated with credit cards, or the very high interest connect to the first couple of years of a home mortgage.  However, an extra 600 - 1000% in interest is a sum that is going to hit you hard in your wallet no matter who you are.

Abusing Payday Loans = Self-Destruction
There are additional variables that need to be taken into consideration when using payday loans improperly. ConsumerAffairs.com reports how abusing payday loans will often lead to the borrowers filing for bankruptcy. In fact, they further report that payday loan applicants that achieve approvals are three times as likely to end up in bankruptcy within three years when compared with the filings of those that are rejected. The snowball cost of payday loans being the main reason.

In conclusion...
Payday loans are one of the most available types of financing for people with bad credit looking to solve short-term financial woes. However, payday loans have very expensive fees associated with them. If they are not used correctly, you will end up in over your head with the end result likely being bankruptcy. Payday loans are not like credit cards where you can decide not to pay, but destroy your credit. Payday loan costs are automatically deducted from your banking account the same day your paycheck is deposited. There are situations when payday loans are a good idea.

Getting the Best Payday Loans - Make sure you get the best deal for your short-term loan.
Application Tips - Steps to take that will help you achieve approval.
When Payday Loans Should Not Be Used
Payday Interest Rates
Benefits of Payday Loans
Why Is My SSN Needed By Payday Lenders?


 

 

 

 

 

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