Although this kind of loans is great when you’re pressed with time and left with no other choices, it isn’t coincidental that many U.S. states have made payday loans illegal or are in the process of legal battles to prohibit them. Many people get fooled by the fact that you can’t borrow large amounts of money through this kind of loans, so they risk getting into debt even by lending small sums of money. Payday loans aren’t a thing to be taken lightly, and we’ll try to expose some of the major risks of turning to this kind of cash emergency loan. Still, if you’re careful enough and only use these as a last resort, the quick payday loans can be very helpful.
High interest fees are the number one reason payday loans are a bad idea. Compared to the amount of money you’d pay by getting a cash advance via credit card, there’s roughly a $100 difference in fees charged for a payday loan and a credit card loan for the same amount of money. You’ll be charged roughly $15 for every $100 you choose to borrow, which is a pretty high percentage of the money you’re getting going into waste. If you take into account that you can make loans up to the value of your paycheck, the fees you’ll be paying can sometimes sky rocket.
The time factor is essential when it comes to payday loans and paying back. The reason people go for this type of loans is the time limit in the first place, because you can get a loan within 24 hours of filing an application and you can even do it online and in the late hours. This backfires on you when you realize that there’s only a couple of weeks to return the money, because it gets taken from your next paycheck. You need to be careful about the timing of the loan and keep in mind that failing to return the money adds more interest fees and results in the bigger debt, which could force you to take another loan just to return the previous one and create a vicious circle. There have been many unfortunate stories of people trapped in debt due to small payday loans that grew big over time, due to high interest rates.
When returning the loan, the downside is that you have to return it all at once, no installments enabled. Another bad thing about it is that you cannot make any payments until you’ve paid your debt. If you compare it to a standard credit card loan, you’ll see the big difference. Not only credit card loans enable you to make small payments instead of returning the debt at once, they even allow you a grace period of up to 30 days before they start charging additional fees. That’s why in the long run it doesn’t pay off to take payday loans. Still, for people with a bad credit record, this kind of loans is the only possible kind.