3 Reasons Why You Should Avoid a Payday Loan

It is normal for someone to get strapped for cash. Many people are servicing different loans including a mortgage and a car loan. Hence they cannot go to the same bank for another loan. The result is turning for a payday loan. These types of loans are attractive because they are readily available. Also, you get the amount requested credited into your account within 24 hours. However, there are drawbacks to using this type of loan.

1. High-Interest Rates
Payday loans come with astronomical interest rates compared to a bank loan or that charged on your credit card. The effective interest rate for a one-month payday loan can go as high as 200 percent. On the other hand, you will pay an interest rate of 14 percent for your credit card. Therefore, using a payday loan, you will lose much money to the payment of the interest.

2. Processing fees
Even though they will credit your account with the funds in 24 hours, you will pay highly for the convenience. Your creditor can legally charge you a fee from $17 to $300. When paying the loan, you will pay this fee on top of the interest accrued. It makes the loans very expensive.

3. Aggressive practices by the creditors
Currently, many states are scrutinizing payday loans. Some have put in place strict policies and rules that limit the interest rates and fees that a lender will charge you. Other states are considering or have already abolished payday loans. The reason for these developments is the aggressive behavior that the lenders display in the issue and collection of the money. It is because the loans are a last resort. Therefore, the people using them are desperate. The lenders take advantage of this fact and scare the borrowers and in some instances even forcing them to pay more.

The reasons above show clearly that a payday loan is not the best alternative for getting cash when you are broke. There is a different and easy payday loan alternative for everyone. You can take an installment loan. A loan is better because they offer low-interest rates and fees compared to payday loans. They also offer flexible payment terms and no one would harass you as the payday lenders. However, you should ensure that you maintain a good credit score before you go for these loans. It is because the credit institution will consider your credit history when considering whether they should give you the loan. Also, some organizations can use the score to determine the interest rate to charge you. When you have a good score, you will pay a lower interest and vice versa.

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