Payday loans are mostly short-term loans that are available for a few weeks. Payday loans are provided mostly in cases of emergencies. You do not need to undergo the long process involved in getting a normal loan from the bank.
These payday loans are mostly given by lenders known as payday lenders. All the payday lenders need to do is to check your bank account and also verify your source of income. Once they are done, you can get your loan if it is approved.
The major reason why they need to check your bank details and source of income is to ensure that you will be able to pay back the loan amount.
Risks involved in Payday Loans
However, it is easy to acknowledge how timely payday loans can come through, (especially in times of emergencies). Payday loans also come with an amount of risk just like any other major business venture. Payday loans are often described concerning the risk involved. Some of these risks include:
#1. High cost and interest rates
This is one of the obvious and alarming problems with payday loans. Its interest rate is usually higher than mainstream banks. Especially when the deadline is within a limited timeframe. One would think that a decent rate should be considered at least for a person with either bad credit or no credit.
However, the reverse is the case as the interest rates are often charged for over 200% within a limited time. The problem here is that this leads to more debts. A person who needed a loan of $200 for an emergency will most likely not be able to pay the sum of $400 in two weeks. Neither would they be able to afford the extra fees for late payment.
#2. Increase in debts incurred:
As stated previously, it is very unlikely that a person who cannot afford to pay for an emergency will be able to repay a debt that is twice the loan obtained within a limited time frame. This would therefore lead to such a person getting more loans and more interest rates. These acts would lead such a person to bankruptcy.
It would therefore be advised that people rather consider other institutions for their loans. These other institutions would most likely give a reasonable amount of time to enable loan payments.
#3. Repayments are done directly through debit cards:
We may all be able to understand how frustrating it could be to have your income debited from your account. Especially before you get to use it for the most important things to you at the moment. Repayments directly from your debit card mean that your income may not be sufficient enough for paying your rent, providing food, or other basic amenities.
However, to avoid such scenes from occurring, it is necessary to discuss other payment options with your lender. Especially, when you know that you may not meet up with the payment deadline.
Conclusion:
A payday loan is almost the best option especially when you have poor credit, no savings, and are stuck in an emergency. However, you should consider the cycle of debts you may be getting involved in.
It is therefore advisable to consider other alternatives for your payday loan debts. These alternatives include coming up with a budget or feasible savings plan which undeniably is better than receiving a court order for the debt owed.
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