What Is the Payday Loan Trap?

Since these loans are so easy to obtain but difficult to repay, borrowers can end up in a payday loan trap. This means that after taking just one payday loan and failing to repay it, people are often forced to take on even more loans to deal with the debt and have enough money for a living. Debt keeps piling up if you fail to make payments regularly, and getting rid of debts becomes increasingly difficult. So, when applying for a payday loan, it is crucial to understand what you are getting involved in and have the means to repay the debts as quickly as possible. Make sure to avoid getting more loans at once as well.

Payday loans continue gaining popularity, as they offer the possibility to get quick money. Taking a payday loan seems like a great solution when you need quick cash to cover urgent expenses. They have a short repayment period, which will help you avoid repaying the loan for years, and the amount you can take is usually small. Unfortunately, there is a catch. Payday loans have very high interest rates and some other unfavorable conditions for borrowers. This often leads to borrowers getting into a cycle of debt, which is also called a payday loan trap. To avoid the undesirable consequences of taking payday loans, you should do some research to make an informed decision.

It is a short-term loan people can usually take even without a good credit history. Lenders usually offer up to one thousand dollars in cash, unlike long-term loans, where you can get larger amounts of money. Because of their accessibility, payday loans are widespread. Let’s review some of the benefits and dangers of this type of loan.

Pros:

• Exceptional speed. Usually, both application review and money delivery to the bank account happen within a day. This speed is one of the main benefits for people who need money urgently;
• Accessibility. Most loans are not available for people with poor credit history. Payday loans are much more attainable and remain a single option for many people;
• Convenience. It is easy to complete an online application and receive a payday loan. People simply fill in the form and wait for the lender’s reply.

Cons:

• Interest rates. These loans have huge interest rates. The average interest is about 400%, which makes such loans extremely expensive;
• Fees. Payday loans may have additional fees, which makes them even more difficult to pay out;
• Predatory loans. Many specialists consider payday loans predatory as they mainly target people needing quick funds. These people are often ready to take any loan regardless of its terms and conditions in order to receive money quickly and pay for the necessities.

As you can see, the advantages of payday loans come at a high price. Thus, you should always do thorough research before taking such demanding loans.