Payday loans are dangerous little devices. They offer an extremely temporary feeling of stability, until the next bill roles in, or you need to pay the loan back. They hide their interest rates by charging a “flat fee.”
After all, would you rather take a one month, $200.00 loan that charges a $20.00 fee, or take that same loan at 120% interest? They are the same!
People think that because $20.00 is 10% of $200.00 that they are only paying 10%. But you are paying 10% in one month! You have to annualize that interest rate, and that makes it 120%!
Payday loan companies generally prey upon the poor and people who can’t do math. Do they provide a service? Absolutely! Do they charge a fee for it? Of course! Is there something wrong with this setup? No, to an extent.
At the end of the day it is up to the person taking the loan to determine if it is in their best interest, but be careful because payday loans can be a nasty little pill.
We Don’t Need Proof of Income, We Have Your Address
The worst of the worst are the loans that don’t require a fax. These are often referred to as no fax payday loans and these are payday loans that don’t require income verification!
Here is a good article about no fax payday loans. At interest rates as high as 120% and not requiring income verification, its starting to sound like people are doing business with gangsters. The payday loan industry fulfills an immediate cash need, but like all things, if you take too much of it, it will hurt you.
The Payday Loan Cycle
Payday loan companies can get you out of a tight jam, but don’t get into the payday loan cycle where you’re taking out other payday loans to pay off the balance left by previous ones. This will only result in a never-ending loop of fees building up.
Then, before you know it, you’ll be taking out a payday loan to pay off the remaining balance, and pawning the stuff you own to pay off that other loan! This can quickly spiral out of control and make a situation that was originally just inconvenient, into horrific and detrimental.
If you get into a tight situation, please consider your options. If you have no other options available then make sure you don’t end up in the payday loan cycle. It is important to exercise extreme vigilance.
If you are in a situation where you need to take out a payday loan, then there is a much bigger problem in the picture, and that is your overall finances. An unexpected bill shouldn’t push you to need a payday loan, and if it does, you have a lot of work ahead of you. Star by building an emergency savings.
Payday Loans Are Not Necessarily The Problem
In no way are we trying to disparage the payday loan industry as they provide a valuable service. People actively seek these loans out and if these companies weren’t here then the business would go back underground, but it is up to the patron to make sure that they are making the right decisions.
It would be nice if, like a bartender, the payday loan companies would cut you off when you’ve had too much, but that is in a fantasy world, and no one will be your accountant for free.
Be smart, be prudent, fix your financial situation and move forward. Debt is not the answer! What are you doing to improve your financial situation? Are you or have you ever been stuck in the payday loan cycle?
Related:
BankRate – Breaking the Payday Loan Cycle
Payday Loan Maxx – Bad Payday Loan Companies
