The risks involved with payday loans
Taking a payday loan is like requesting for an advance except with a payday loan, you will pay back the loan with interest. People like the idea of payday loans because they are convenient, fast and require minimal qualifications to obtain. Even though payday loans have saved many during financial crisis, they have destroyed a substantial number others ‘of financial health. Some people don’t seem to be moved by this thought but you can protect yourself by learning the risks that come with payday loans and how to avoid them
With payday comes the risk of taking more loans to pay existing loans. Imagine you have a credit card loan, or maybe took a loan from a friend or colleague, the due date is almost here but you don’t have any funds to pay them back. Conventional loans can be hard to obtain because they take long and require a high qualification level so you settle for a payday loan because they are instant convenient and require minimal qualification. You pay the loan with your payday loan.
The more you pay loans with other loans the more you risk creating a debt cycle and getting yourself deeper into dept. If your income is committed to paying loans, it will hard to live through to the next paycheck so essentially you would have to borrow a loan to survive. This cycle is hard to get out of.
When you register to a payday website, there is a high chance you may be providing your information to fraudulent lenders and scammers. Online businesses are known to have the highest number of scammers. People have created websites which they use to scam unsuspecting people. They collect your information and it for subscriptions and identity theft. Some scammers pose as your payday loan lenders and call may call you to demand for payments. Fraudulent lenders have unlicensed payday websites where they impose excessive interest rates on loan borrowers. You should think twice and investigate before feeding your information to online webs.
The risks involved in taking these loans are enough to cripple your financial health. For starters, the interest rates on payday loans are too high, especially for a short-term loan. Conventional loans are long term but they have cheaper interest rates. The interest rates on payday loans are imposed as soon as you get the loan. When you don’t pay the loan on time, interest rates will increase until you pay it fully.
When you don’t pay your loan on time, you risk your credit card report. Payday loans do not reflect directly on your credit card so how is this possible? If you don’t pay your loans on time, your debt will appear on your bank statement and the lender may report this to the credit bureau depending on their terms. Either way, the unpaid loans will appear on your credit card report as bad credit. With bad credits, it will be hard for you to receive traditional loans. Insurance companies will charge you more and you may get less job opportunities if you have bad credit reports.
The risks surrounding a payday loan are high, always avoid payday loan if you are not in any financial emergency. If you take the loan, take measures to avoid the repercussions.