What Are Three Downfalls of Payday Loans?

Payday loans are widely popular due to their speed and convenience. People usually call them quick loans, as they help borrowers in urgent situations or when they need a small amount of money. However, you should know about the downfalls of payday loans. For example, they are expensive and dangerous, especially if you do not consider your options properly. While payday loans still have their benefits, the disadvantages might be too drastic for many people. Make sure to do your research before you commit to a quick payday loan.

What Are Payday Loans?

Payday loans are unsecured loans that offer smaller amounts of money than other types of loans. A payday loan is normally less than 1000 dollars, and it comes with no collateral. These are short-term loans with quick repayment periods, usually up to a month. The term payday loan comes from the idea of borrowing a small cash advance and returning it after the next payday.

With payday loans, credit history is usually not a problem. Lenders only ask for some sort of ID and proof of income. You can apply for such loans online and receive your money within a day. People often fall for these loans because of a few reasons:

• They can get quick money;
• Lenders do not require a perfect credit score;
• The loan is unsecured;
• You can receive a small loan instead of making a big commitment;
• The application is simple and accessible.

While payday loans are quick and easy to obtain, they have some major downfalls. Therefore, consider both pros and cons before taking these loans to avoid drowning in debt.

Price

Payday loans are extremely expensive. The average low interest rate for such loans is 400%, which is very high compared to medium-term and long-term loans. This is the price for quick cash advances and the ability to receive a payday loan without collateral. People with poor credit scores also have no choice but to settle for such high interest, as other, more beneficial loans are inaccessible to them.

Debt

Payday loans are quick, and it is easy to miss the payout. Failing to pay out your loan usually leads to taking even more loans to cover the expenses. As payday loans come with high interest rates and fees, it is crucial to pay off the debt as soon as possible. Unfortunately, many people become trapped in a cycle of debt. While other loan types might be more favorable and easy to repay, payday loans are often considered predatory.

Bank Account Access

Payday loans are quick to receive, and the money is delivered to your bank account within the same day of applying for a loan. However, lenders often get access to your bank account. They can request continuous payments from you as long as you fail to repay the loan or there are added fees. It is possible to deny such access, and many borrowers think that giving such authority to lenders is dangerous.