Payday loans have become quite popular today that you may have heard of it even if you haven’t gotten to getting one yet. If you haven’t gotten a payday loan yet, congratulations! Because the payday loan is a trap and can kill your finances faster than credit card debt. Put differently, consider payday loans as one of those bad financial ideas that you will most likely regret if you get into. It is easier to get a payday loan, but getting out of this debt quicksand is very difficult.
In this article, you will see why a payday loan is a trap that you should stay away from as much as possible.
How payday loan works
A payday loan is a short-term loan that is meant to be paid back in a matter of weeks or when your paycheck arrives. Getting a payday loan is easier these days because everything can be done online without you walking into any office or signing any physical document. What payday lenders do is check out your income as well as your checking account to be sure you are creditworthy. Once the lender is satisfied with the information you have provided, the money you requested is made available to you.
Once your loan request has been approved, the requested amount is then transferred to your bank account that has been verified beforehand. However, you are required to write and sign a post-dated check that will be cashed on the agreed date of repayment. The check written out will cover both the amount borrowed and the interest.
The check is some form of guarantee to the lender that you will repay the loan at the agreed date. The lender will also ensure that the account used is the same account that your paycheck is paid into. Why payday loan is easier to get is because payday lenders, unlike traditional lenders, do not consider your credit history before approving your loan.
Why payday loan is a debt trap
● High-interest rate: Payday loans are known for high interest rates even higher than the interest you pay for credit card debt. While you can pay 28 to 30% as interest on some credit card debt, you will pay double that percentage. Though it may look like an easy way to solve your urgent needs, you will discover you are left with little or nothing after paying such debts.
● A payday loan drags you into a debt cycle: many people who apply for payday loans, and up not meeting up with the payment agreement. What happens is that you are drawn into a debt cycle where you borrow to pay up and keep borrowing without end.
● Demand for access to your bank account: many payday loans will request access to your account especially when no post-dated check is required. According to the lenders, it saves you the stress of writing them a post-dated check. However, if by the due date, the complete amount is not in your account, they can make repeated attempts to withdraw thereby incurring an overdraft fee of up to $35.
● Ruthless debt collection tactics: Payday loan lenders can go to any length to get their money. Their tactic can even include harassment and calling late at night. The hassles associated with it are not worth it in the long run.
Conclusion
A lot of cases may have been made for payday loans but when you look closer, you will discover it is nothing but a debt quicksand. Many who have fallen into this quicksand find it difficult to come out of it. If you are already in this situation, click here for payday loan relief help.
