Are payday loans bad? Some people say that payday loans are an excellent way to get out of a tough financial spot, while others claim that they are nothing more than legalized loan sharking. So which is it? We’ve taken a close look at both sides of the argument to try and get to the bottom of this controversial topic.
The Bottom Line on Payday Loans
While there are both pros and cons of payday loans, it’s important to remember that these are emergency loans. They are meant to be used in situations where you need money fast and don’t have any other options. If you find yourself taking out payday loans on a regular basis, then it’s probably time to reevaluate your finances.
If you are considering a payday loan, make sure you understand all the fees and interest rates associated with the loan. And always remember, if you can’t afford to pay back the loan on time, it’s likely better not to take one out at all.
What Are Payday Loans?
A payday loan is a short-term, high-cost loan that gives you cash when you need it so you can pay your bills and avoid late fees. But payday loans come with high fees and interest rates that can trap you in a cycle of debt. And if you have bad credit, getting a payday loan will be even harder.
Pros of Payday Loans
Though payday loans come with high fees and interest rates, they also have some pros that can be appealing to borrowers. Here are two of the most significant advantages of payday loans:
Easy to Get
If you have bad credit or no credit, it’s still easy to get a payday loan. Lenders often don’t check your credit history, so even if you have filed for bankruptcy, you can still get a loan. These types of loans also have fewer requirements than other loan types, as you typically only need to be 18, have an ID or social security number, have proof of income, and an active bank account.
Are an Unsecured Loan
A payday loan is an unsecured loan, which means you don’t have to put up any collateral. This can be helpful if you don’t have any assets, such as a car or home, to use as collateral and also puts your possessions less at risk if you can’t repay the loan.
Cons of Payday Loans
Payday loans can be a helpful way to get out of a tight financial spot, but they also come with some serious risks. Here are three cons of payday loans you should know about before you decide if this type of loan is right for you.
While payday loans may be easy to get, they can be expensive and have an annual percentage rate (APR) of almost 400% in many states. This means that if you borrow $100 for two weeks, you may end up paying back between $10-$30 in interest and fees. This can quickly trap you in a cycle of debt, as you’ll need to take out another loan to cover the fees and interest of your first loan.
Are Often Predatory
In many cases, payday loans are predatory, as they target people who are vulnerable and may not be able to repay the loan. The fees and interest rates on these loans can quickly spiral out of control, leaving borrowers in a worse financial position than they were in before taking out the loan. These companies often don’t check if you’re able to repay the loan and taking this type of loan might not build your credit score if the company you took the loan out from doesn’t report to the credit bureaus.
Reinforce Living in Extreme Debt
If you find yourself constantly taking out payday loans, it’s a sign that you’re living in extreme debt. This type of loan should only be used as a last resort and if you’re not able to repay the loan, you may want to consider other options, such as bankruptcy. If you are in a position where a payday loan is your only option, it may be time to seek professional financial help to get out of debt.
When to Consider a Payday Loan
Despite the high fees and risks, there are times when a payday loan can be a helpful tool. If you find yourself in one of the following situations, a payday loan may be worth considering:
- You have an emergency and need cash quickly
- You can’t get a loan from a bank or credit union
- You need to make a payment on a loan or credit card to avoid late fees or penalties
- You have bad credit and can’t get a traditional loan
If you do decide to take out a payday loan, make sure you understand the terms and conditions, as well as the fees and interest rates. You should also only borrow what you can afford to pay back, as defaulting on a payday loan can lead to serious financial consequences.
A Word of Caution with Payday Loans
While payday loans can be helpful in some situations, they should be used with caution. These loans come with high fees and interest rates that can make them very expensive. If you’re considering a payday loan, make sure you understand the risks and only borrow what you can afford to pay back.
Alternatives to Payday Loans
If you’re struggling to make ends meet, and payday loans seem like your only option, there are other alternatives. Here are five options to consider.
Home equity loans
A home equity loan is a type of secured loan in which the borrower uses their home as collateral. This type of loan is often used to finance large expenses, such as home repairs or college tuition, and can provide borrowers with a lower interest rate than other types of loans. In order to qualify for a home equity loan, you typically need to have a good credit score and a reasonable amount of equity in your home.
A 401(k) loan is a type of loan that allows you to borrow money from your 401(k) account. This type of loan can be helpful if you need money for a large expense, such as a downpayment on a home, home repair, or wedding, and can provide you with a lower interest rate than other types of loans. In order to qualify for a 401(k) loan, you typically need to have a good credit score and be employed with the company that sponsors your 401(k) plan.
Personal loans can be a helpful alternative to payday loans, as they come with lower interest rates and fees. In order to qualify for a personal loan, you typically need to have a good credit score. You can compare personal loans from a variety of lenders to find the best rate for you.
If you’re struggling with debt, there are a number of options available to help you get back on track. One of the best ways to reduce your debt is to settle it with the help of a professional. Debt settlement is a process in which you work with a company to negotiate a lower payment on your debt. This can be a great way to reduce your debt by negotiating to lower the amount you owe by up to half.
Struggling to Repay a Payday Loan?
If you’re struggling to repay a payday loan, there are a couple things you can do. First, try to work with the lender to see if you can extend the repayment period or arrange for smaller payments. If that’s not possible, you may want to consider consolidating your payday loans into one larger loan with a lower interest rate.
How Can CreditAssociates Help?
If you’re struggling to make ends meet, and payday loans seem like your only option, CreditAssociates can help. With our debt settlement program, we can help you reduce your debt by up to half or more. We work with you to negotiate a lower payment on your debt, which can be a great way to get back on track. Call us today at 1-800-983-6693 and let us help you get back on the path to financial freedom!
Common Questions About Payday Loans:
Can a payday loan mess up your credit?
Yes. A payday loan can negatively affect your credit score if it’s not paid off in a timely manner, assuming the company you received the payday loan from reports to the credit bureaus.
Do payday loans go to collections?
Yes. If you’re unable to repay your payday loan, it may be sent to collections. This will likely damage your credit score and may result in wage garnishment or other legal action.
Can you go to jail for not paying off your loans?
No. You can’t be arrested for not paying off a loan, but you may be sued by the lender.
What happens if you ignore a debt collector?
If you ignore a debt collector, they may eventually give up and stop trying to collect the debt. However, the debt will still show up on your credit report and may result in wage garnishment or other legal action if the lender decides to sue you.