Who should avoid such financial support?
Payday loans are like fire. Fire can be beneficial for cooking, melting metals, and many other benefits you know. Fire can also cause the death of living things and the destruction of property. It means that fire is both good and bad, which payday loans are.
What are these payday loans? A payday loan is a short term loan repayable over the next paycheck. To be approved, you need:
- An active bank account;
- ID card;
- Proof of stable income.
Payday loans are both beneficial and destructive. It is important to know the various negative consequences that you will get from their application before making a decision.
Why payday loans are dangerous
- The high interests involved
Payday lenders are known to massively rip off your money. For example, if you were to borrow $ 50 from a traditional lender like a bank with a payment term of one month, the total interest charged would be around $ 10. But if you are using a payday lender, consider multiplying that number twice or sometimes three times depending on the lender.
This is due to the fact APR rate for payday loans between 391% and 400%. The reason behind the high rate is to meet the risk of default as no collateral is involved when applying.
Most payday borrowers are unable to pay the high interest in a short period of time, leaving them in a cycle of debt of borrowing other payday loans to pay off the first ones. This worsens their credit score and their report.
This is why payday loans are illegal in 14 states. They do not operate in states where they must stay under a wear cap of 36% APR.
To get payday loans with relatively lower interest, you can always search Top 10 Online Payday Loans and choose a lender with the best deals.
- Consequences of late payments
If you don’t pay off the loan on time, be prepared to pay extra fees for it. “You will be charged a renewal fee, ranging from $ 15 to $ 100 if you need more time to pay off your loan,” according to Kyle, a financial advisor.
But what if you don’t pay back the loan and ask for more time? Well, remember that when applying, one of the requirements was an active bank account. As no collateral is required, the bank account acts as collateral.
So “if you don’t pay off your loan, lenders can take money out of your bank account,” says Sarah of Life with Sarah.
This situation can lead to a bank overdraft.
- You can be sued in the event of default
If you are in default, be prepared to be “softly” fueled by many threatening appeals urging you to repay the loan. The next of kin you registered during the app will also receive these calls and most likely call you back to ask you to do the same. This means that you will receive calls from two different sides.
If you are still in default despite the appeals, the lender may take you to court where a judgment will be rendered on the amount of money you owe and are obligated to pay. Do not worry. You can’t be sued for non-payment of the debt.
For this, one must be careful when applying for this type of loan. Have a plan ready on where you will get the money in no time. If you do this, you will reap the great benefits offered by the loan. These benefits include:
- Quick application and response, normally within minutes or an hour;
- Instant automatic transfer of funds to your account upon approval;
- Use the money for anything;
- They are available for everyone, even those with bad credit;
- 24 hour service.
Always be careful when taking out a payday loan. You don’t want your financial health ruined with just one short term loan.