Risks of payday loans

Risks of Payday Loans

The payday loan has been around for a while. It was designed to enable people to acquire funds to get them to their next payday without having to submit to a credit check. People with any credit rating can get a payday loan. All they need is a job and a checking account in good standing. A large interest rate is added to the money, but a person can walk away with cash without having to meet too many requirements. The recipient can pay it back when he or she is paid again through an automatic debit from a checking account.

While this sounds easy, it is important to be aware of the risks because they do exist. It is convenient to take on a quick loan, but it can be inconvenient when it’s time to pay the money back and there are other expenses to be paid. This can result in the need of another loan to get to the next payday.

Why People Are in Debt, and How to Avoid It

People tend to get into debt because they borrow more money than they make. Everyone goes into debt in some form, whether it’s to buy a car or a house. When other lines of credit, like personal loans and credit cards, are added to the debt pool, they can make it overwhelming. When people become overwhelmed, they can ruin their credit by not being able to pay back the money that they’ve borrowed. If credit is already ruined or they don’t want to ruin it, they may turn to payday loans for quick cash that will help them pay their bills.

Some people are able to handle payday loans. They will borrow just what they need and nothing more, making it easier to pay back on the agreed upon repayment date. Others may borrow too much, which makes it hard to pay back the money on the following payday and also pay regular living expenses. Basically, some people borrow money that shouldn’t, and others do just fine.

Another issue with the payday loan is the short payback. Although it may seem great to be able to pay back a loan in a short period of time, you may only have 14 to 90 days to do it. This is not a lot of time when you are in a financial pinch. One misstep financially can lead to a domino effect. Throw a payday loan into the mix, and you suddenly have dominoes falling in multiple directions.

What Happens When You Can’t Repay the Loan?

If you aren’t able to repay the loan as agreed, you may have to deal with an administration fee, a late fee, and higher interest. It is possible to contact the loan company before the payment is late to work out a solution. There are times when the payday loan company may be able to extend the repayment period, but this does result in a higher fee and more interest. If you still have difficulty paying back the loan, the payday loan company may turn the account over to a collection agency. This will have an impact on your credit rating, and the debt can grow because of fees.