Five Reasons to Avoid Payday Loans
The lure of quick cash from payday loans may seem like an easy solution to money shortages during a time of need. Also called check loans or cash advances, the borrowed money is secured by your next work paycheck or government benefit check.
To qualify, borrowers provide personal, financial, benefit and employment information. And in a few, short minutes, the cash is available via paper check or deposited directly into your checking account within 24 hours. Payday loans may seem like an attractive option at first glance, but truth is, they may actually push you further into financial bind in the long run. Below are five good reasons to avoid payday loans at all cost.
High Interest Rates
The average interest rate on a biweekly loan is 15%. Most payday loans are renewed or rolled over within the first two-week period, making the interest rate 30%. If the loan is renewed every other week for a year, the interest would 15% interest would be multiplied by 26 weeks, ballooning the interest to a whopping 360% per year.
Buried deep within the fine print of payday loans are the hidden fees. Many lenders asses a $17.50 charge for every $100 borrowed on top of the loan capital and interest rates. These fees can swell up to a cap of $300. So before signing up for a payday loan, be sure to read the fine print to know exactly what you’re getting into.
Banned Or Tightly Regulated in Many States
Because payday loan companies have been accused of taking advantage of borrowers who can’t get a loan anywhere else and trick them into higher interest rates and ridiculous fees, payday lenders are illegal or tightly monitored in 18 states.
Require Access To Bank Account
It may seem like a good idea to have payments automatically drafted from your bank account. But if you fall behind, your balance continues to grow, and they won’t stop drafting the money. If the money is not available in your account, this can cause overdraft fees from your bank.
May End Up In A Cycle
According to Center for Responsible Lending research, 76% of payday loans are used to pay off previous payday loans. The nonprofit consumer group also reported that on average, borrowers stay in debt for more than six months.