DANGERS OF PAYDAY LOANS
As with any type of loan product, if not used correctly,
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
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.
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
loans are a good idea.
Best Payday Loans - Make sure you get the best deal for your
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When Payday Loans Should Not Be Used
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