Everywhere you go you can see various businesses advertising Payday Loans or Cash Advance Loans. People who are in desparate need of money often find themselves susceptible to these type of loans. Payday loans are relatively easy to get. Most Payday loans do not require any sort of credit check and can be approved in a matter of minutes.
The way Payday loans work is that you write the lender a check for the amount of money you want to borrow. The check you write will also include a fee. The check is dated for a later date, usually when you expect to receive your next paycheck. Once that date comes your check is cashed and all is said and done. Eventhough this sounds pretty simple, many people get trapped by Payday loans. Here is why people should avoid them:
- Payday loans charge very high rates annual interest rates. Interest rates on Payday loans can be as high as 300 to 400%. Even the most expensive of credit cards only have APRs ranging from 25-35%.
- Payday loans are easily renewable which can lead to a cycle of debt. Lets say you take a Payday loan for $100 and pay a fee of $10 (you write a check for $110). When the loan is due you have the option of renewing the loan by paying another $10. It seems better to pay the $10 rather than the full $110. However, after a few weeks of paying renewal fees you could have just paid off the original balance of $100. It is estimated that as much as 80% of Payday loans are used to pay previous Payday loans.
- Not paying your Payday loans and fees can leave you susceptible to collections practices like calls, letters, harassment, all of ehich can ultimately lead to the Payday lender suing you in court.