Why You Should Avoid Payday Loans At All Costs
If you are stranded at sea and have little or no water, you may be tempted to drink seawater. Unfortunately, the salt in the seawater will dehydrate you and kill you even faster than you would have died without any water. That's the metaphor for payday loans. When you're in dire financial circumstances, someone offering you a “quick and easy” loan seems so tempting. However, it's like the seawater and can rapidly land you in much worse financial trouble than you were in originally. That's why you should never use payday loans to get out of a financial jam.
Payday Loans: The Terms
- Bottom line, with a payday loan you pay roughly 400% interest on the money you borrow, compared to an average of 12%-to-30% interest on normal loans.
- Most payday loans are for less than $500, and lenders charge between 10% and 30% for every $100 borrowed. So, if the payday lender lent $500 for two weeks at 15%, a borrower would have to repay the loan on their next payday plus $75.
- Borrowers frequently lack the money to pay the loan back with interest when it comes due, so they roll the loan over into a new loan, and they wind up even more indebted to the payday lender.
- Lenders may require the borrower to leave a signed check for the amount or may get permission to draft money from the borrower's account on the agreed upon date. This has several times lead to massive fraud.