The Pitfalls of Payday Lending

By: John Hirabayashi

Posted on 11/9/2014 12:00:00 PM

If you are considering a payday loan, you need to read the following information before you follow through with your loan application.

Thanks to online payday lending, payday loans are becoming easier to acquire. With many sites, you can have the money in hand within 24 to 48 hours, and you never have to leave your home. However, when you use these lenders, you will pay for the convenience and the nearly instant access to cash. Many people turn to these lending vehicles when they feel they have no other choice, however, there are many options that are available to you if you need funds for an emergency or just to get you through to the next payday. If you are considering a payday loan, you need to read the following information before you follow through with your loan application.

Extremely High Interest Rates

Payday loans carry extremely high interests. Many states have passed laws that put a cap on these rates, but the maximum allowable interest rates are still between 24 and 39%. This translates to about $30 in interest for every $100 that you borrow. If you roll the loan over to the next period, you will pay this interest fee again. Many borrowers get so far in over their heads that they are running all over town to get a new payday loan to pay previous loans to keep their bank accounts from going negative.

Other Fees

There are also loan origination, paperwork and administrative fees. These fees can add up to as much as the interest charges. Most states have laws concerning these fees, but payday lenders are still allowed to charge nearly as much for fees as they do for interest.

Short Payoff Terms

When you take a payday loan, you have to provide proof of income. Your loan is due in full on your next payday. You will have your normal bills that are also due, so you likely won’t have enough funds to cover the payday loan and the necessities of living.

Never-Ending Cycle

As stated above, the payday loan game can become a vicious cycle that is impossible for some borrowers to break free of. One payday loan turns into another, and soon, borrowers are taking out new loans just to pay off old loans. There isn’t enough money for the loan payments as well as other bills that are due, and the only option may be bankruptcy.

Stress

An intangible problem related with payday loans is the inordinate amount of stress that you will face, worrying about your next payment and what you are going to do to get your bank account back in the black. Too much stress can also cause health issues and lead to missed work or medical bills, which will further impact your finances. The best way to avoid this stress is to avoid the payday loan game altogether.

Better Options

There are many options that come with less detriment to your finances and your mental state. The first option is a credit card. You can find a credit card with no interest fee or low interest fees for an initial introductory period. This will give you some breathing room so you can get caught up on other bills and then tackle the credit card balance until it’s paid off. You can also opt for a small personal loan from your credit union. Community First has several great loan options for both signature loans and secured loans. These loans carry low interest rates and low payments so you can get your finances back under control. For more information on lending products that will help you avoid a payday loan, contact Community First today. We’ll help you get the money you need so you can focus on the aspects of daily life that are more deserving of your attention.