Payday loans, or cash advance loans, have been aggressively marketed as a great source of easy, short-term credit. Unfortunately, these loans also come with a heavy catch most debtors are unaware of when they sign the loan agreement. As such, hundreds of people find themselves deeply and disastrously in debt to the payday loan companies.
What Do You Mean By Payday Loans?
Payday loans are high-interest, short-term loans that are aimed at people who cannot get a regular bank loan. Unlike regular loans, payday loans technically last only till the next payday, though most loan terms tend to be between one to three months.
Disadvantages of Payday Loans
There are several disadvantages to payday loans. These include the following.
• High Rates of Interest: Payday loans have insanely high rates of interest when compared to regular bank loans. Most payday loans have interest rates between 500 and 1000 percent. Borrowers end up paying back almost double the initial loan amount.
• Harsh Late Charges: Cash advance loan companies also tend to be harsh on late payments. In many cases, a single late payment can mean that you have to pay double the premium to make up for the delay. Inattentive or careless borrowers can find them in debt to the tune of thousands of dollars.
• Possibility of Scams: many of these payday schemes are far from legitimate.
• Addictive: Hundreds of people have ended up irretrievably in debt just because they became addicted to payday loans to provide for luxuries they could not otherwise have afforded.
To conclude, whereas there is no doubt that payday loans can be useful on occasions, it is essential to avoid them unless you have a genuine emergency. Even then, it is better to explore other financing options like title loans, which are far more borrower-friendly.