Cons of Pay Day Loans
Pay day loans are easy and quick to obtain. All a person needs is proof of steady income and a bank account. The applicant can have the cash he needs within a matter of hours. Although a payday loan can get a person out of a financially challenging situation, there are many disadvantages associated with payday loans if not used cautiously. It’s important to understand how these types of loans work and the possible risks.
How Do Payday Loans Work?
A payday loan is a short-term loan, normally, with a maturity of one week. A person selects a payday lender and submits a brief application. This can be done at a lending center or online. Once the application receives approval, you write a check payable to the lender for the total loan amount, which includes the borrowed amount, loan fee, interest rate, and any other applicable fees. You post-date the check to the agreed date (typically the next paycheck’s date). In the meantime, you can redeem your check by paying the full amount on or before the due date.
On the due date, if the lender has not received payment yet, he withdraws the complete amount from your banking account. In case of insufficient funds, you will incur additional fees from your bank, as well as from the lender. Depending on the terms of the contract, you may receive an extension; however, that normally means an additional loan fee.
Risks Involved With Pay Day Loans
Learn about the cons of payday loans before applying for one. For example, one disadvantage associated with loans from pay day lenders is the possibility of increased debt. If a person is living paycheck to paycheck, he needs to realize that he will have to pay the full amount borrowed with his next paycheck. In such case, the person will run the risk of needing to request another payday loan to make it through the week. It could result in a cycle of paying a loan and taking out a new one. Keep in mind that each loan adds on a new fee and interest rate, which take up resources that would generally go toward other family’s financial responsibilities. Many consumers find themselves in a whirlpool that is extremely difficult to get out of.
Another disadvantage involving payday loans is the stress that results from getting deeper and deeper into debt. The person could get to the point that he feels hopeless and depressed. Even worse, stress can affect a person’s job performance, his family relationships, and his quality of life.
Reports show that stress can greatly increase a person’s risk of developing heart disease, stroke, and cancer. Furthermore, financial problems are the number one cause for problems and divorce among married couples. It may seem unbelievable that all this could result from requesting a payday loan. Nonetheless, many families are currently experiencing problems like the ones mentioned above due to payday loan debt. What they thought was going to solve their money problems only worsened the ordeal they were already experiencing.
Who Should Not Apply For A Pay Day Loan?
There is a group of consumers that would do better looking for other alternatives to their financial problems and should not apply for a loan from pay day lenders. A person who experiences ongoing financial hardships would not benefit from a short-term solution. These loans are temporary solutions for emergencies. An ongoing shortage of funds would only make matters worse. In reality, pay day loan lenders are not supposed to issue loans to consumers when it is obvious that they will be unable to repay the loan.
If you fall in this category, it would be wiser to seek credit counseling. Perhaps making a family budget would help. Another alternative could be to get a part-time job to help you catch up on your bills, and start an emergency fund. Financial advisors recommend having the equivalent of six months of income saved. Should you lose your job or have to take time off work due to illness, you will have a cushion to fall back on.
Additionally, if you are living paycheck to paycheck, you should not apply for a payday loan either. If you do, it will turn into a cycle of taking out payday loans to make ends meet. A better alternative could be to seek assistance from family or friends.
Overall, although there are cons or disadvantages involved when taking out a payday loan, you can avoid all of them. Take the initiative to learn about the payday loans, how they work, and the risks involved. Many times, people focus only on the fact that they can access cash quickly and easily, and they overlook the responsibilities and possible consequences. If you have ongoing financial difficulties, loans from pay day lenders are not for you. Using this type of loan will only result in added stress and debt. Seek alternative financial counseling and assistance. Although things will be tight for a while, in the end you will fare better by avoiding payday loans.
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