Why You Should Steer Clear of Payday Loans

Of the many different types of loans on the market the kind that often comes with the most risk attached are loans known as a Payday Loans. Payday loans are designed as short-term cash advances for people who need money urgently. This might be because they have spent their wages for the month and a bill or debt suddenly arises, or because their child needs some money for a new school uniform, or because they have simply run out of cash and need to buy some food. When used correctly they can, rarely, be a useful financial tool, but on the whole they are worth avoiding. This is because such loans often come with heavy interest rates that will only increase if you cannot make the repayment and as such are therefore very risky.
Before you even think about taking a payday loan you should ask yourself some important questions. Do you really need a cash advance that urgently? Could you not manage for two or three more weeks until your next pay packet comes in? Do you have the time to save some money before you need the cash advance? If you still need the money urgently, is there not somewhere else you can get it? Have you approached your bank and checked whether you can get an overdraft or extend you current overdraft facility? Is there any room left on your credit cards for you to draw the cash out? Although credit cards also cause problems with their high rates those rates will be nothing compared to most payday loans. Payday loans, because they are normally for small amounts over a small period of time will often charge around $30 for every $100 that you borrow. This may not seem like a great deal if you are able to pay it back when your salary comes in but it works out at over 2000% interest when you calculate the APR of the loan. And the worst bit is that many people take Payday Loans because they are in dire financial straits and end up not repaying the loan within the allotted time frame. This is when people really get in to trouble and their debts can snowball out of control.

These short-term cash advances are meant to be precisely that – short term. If there is any possibility at all that you will not be able to repay the loan then you should steer clear of them otherwise you will get yourself in all kinds of trouble. And do not borrow what you cannot afford to repay. Never ever borrow more than your monthly salary as you will almost certainly not be able to make a repayment when the month is up. And most importantly, if you absolutely must take out a payday loan, ensure that it is with one of the respectable companies out there, that will charge you a reasonable interest fee. Although all payday loans come with high interest rates, there are many companies out there who take this to the next level and charge punitive, if not immoral rates of interest. Make sure you avoid such companies.

Alex is a journalist and blogger. He currently writes about the loans sector and everything from personal loans to mortgages at www.payday-loans.co.uk.

 


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