With the popularity of payday loans seemingly on the rise, there are bound to be people who are on the fence regarding this financial decision.
The primary benefit of a payday loan is simple: you can take a cash advance against your next paycheck, receiving the funds within 24 hours (most of the time).
While this sounds like a good thing, you don’t want to jump the gun before you take a strong look at the drawbacks. Here is what you need to know:
- High interest rate. Did you know that some payday loan lenders charge interest at a rate of 100 percent or more? If you don’t have a bullet proof method for repaying the money before the interest kicks in, you could find yourself digging a deep hole.
- Fees, fees, and more fees. In addition to interest charges, payday lenders make money by assessing a variety of fees, some of which can be quite costly. For example, if you neglect to pay back the loan on time, you could get slapped with a charge of $10 to $20 (on average) for every $100 borrowed.
- Fine print. Simply put, payday loans favor the lender. If you don’t read the fine print, there is a good chance you could agree to something that isn’t in your best interest. Once you read the fine print, such as the terms and conditions, it is likely that you will run the other way.
Final note: the collection practices of some payday lenders are anything but ethical. In fact, it can be downright scary. If you owe one of these lenders money, especially a company with a bad reputation, don’t be surprised if they make calls to your employers and family members. Furthermore, some take up the practice of making personal threats.
These are just a few of the many potential drawbacks associated with a payday loan. The idea of fast cash may be intriguing, but you could end up worse off in the long run. Is that a risk you are willing to take?