The vicious cycle of “payday loans”
If you need money for a car repair, a medical expense or another bill, you may have exhausted all your options, including asking family and friends for help. Like you, your family and friends may have little cash to go around. What do you do in this situation? There’s always the option of pulling out a credit card or dipping into your savings account. But realistically speaking, both may not be feasible. And when your back is up against a wall, a payday loan may seem like a logical solution.
On the surface, a payday loan is an excellent way to get your hands on quick cash. These loans are not issued by banks, thus the loan requirements aren’t as strict and most people qualify providing they have stable income and employment.
While payday loans are easily accessible, payday loan debt can become a serious problem. Sure, you may only apply for a small loan. But fees can add up quickly, and before you know it, your payday loan can snowball out of control.
If you don’t know much about these types of loans, here are three reasons to be cautious:
1. Payday loans are incredibly expensive.
If you apply for a payday loan, you will probably pay £25 per every £100 you borrow. Therefore, if you apply for a £500 loan, you will pay £100 in finance fees. This may not seem like a huge deal, but if you do the math, a payday loan can have an APR around 400% to 600%. And that’s just the beginning. Most loans are due within two weeks, but if you extend your due date or choose a longer term, you will pay higher fees. Additionally, there are fees associated with late payments.
2. Payday loans start a vicious cycle.
Because payday loans are so easy to acquire, they can start a vicious cycle in which you may rely on these loans any time you fall into trouble. Rather than problem solve and look for other ways to come up with cash for expenses, a payday loan may become your go-to method for quick cash. And if you continually take out loans, you may run into payment problems, which could require applying for a payday loan to pay off another payday loan.
3. The risk of overdraft fees.
With a payday loan, the issuing lender will not write a check or accept checks. The process is completed electronically, and on your due date the lender will deduct the balance plus fees from your checking account. If the money is not available, you will incur late fees from the lender, plus overdraft fees from your bank, further complicating your finances.
Given the potential dangers of these types of loans, payday loans should be avoided. Fortunately, there is payday loan debt help if you find yourself in hot water. Although payday lenders say they’re here to help, they ultimately want to keep you in debt. It’s simple – the more you owe, the more they earn.
But rather than walk away from the payday loan and risk potential credit damage, there are ways to handle the situation. Like many others, you can successfully settle payday loan debt, essentially satisfying the debt for less than you owe.
You can attempt a settlement on your own, but often times lenders will ignore your request and require full repayment. But if you work with a professional debt settlement company – a company with top negotiation tactics, you have a greater chance of being approved for the settlement.
Settling your payday loan debt is an excellent way to stop lender harassment, avoid legal action and ultimately enjoy peace of mind.
Photograph by Images of Money