Do payday loans deserve their bad reputation?
As the economy worsens and more and more people are getting foreclosed on, I’ve noticed several more places advertising payday loans and cash advances cropping up. There aren’t many statistics or figures out there to tell us how many people are getting payday loans or if the number is growing. The most current figures are from 2005, when the industry issued more than 28 billion dollars in loans, but financial experts are sure that these numbers may double or more as the housing crisis worsens.
If you’re not familiar with payday loans, the idea is fairly simple. If you need a short term loan of just a few hundred dollars payday loans sometimes called cash advances may be the only option you have. These payday loan companies don’t check the borrower’s credit and they don’t deny loans to anyone, as long as they can show some type of income or government subsidy. The loans typically need to be repaid in just one or two weeks.
Sounds great, doesn’t it? Everyone has unexpected and urgent expenses crop up from time to time. However, there is a downside to these cash advances. They often have high hidden fees. More importantly, the interest rates on payday loans can easily range from between 400-1200%. Some estimates have shown that the average person who takes out a payday loan will end up paying $793 over the course of two weeks for a loan of just $325.
There are many horror stories out there from people who have gotten a cash advance and gotten in over their heads. It is much rarer to hear a story from someone who took out a pay day loan and had a good experience. There are several reasons for this. Payday loans used to be more or less unregulated by the government. There were many large scale unscrupulous cash advance lenders out there that took advantage of this. There are many decent payday loan companies out there, the trick is to ask around and compare rates to find one.
And, as much as some companies have helped earn the bad reputation payday loan companies have, a small part of the blame can be placed on those who take out the cash advance in the first place. Many lenders do not take the time to make an informed decision about their payday loans. They may not read through their entire contract before signing it. Then they feel cheated or scammed when hot with fees and interest they weren’t clear about. The single largest mistakes people make when it comes to payday loans is taking out a lot of them. The system is not made to benefit those who rely on cash advances frequently.
Payday loans are not meant to be long term loans or something you use regularly. If you have a short term, infrequent cash flow problem payday loans can be an ideal way to solve that problem. To keep from getting burned, it’s important to do your research before deciding on a payday loan company, to read everything and be clear about everything before you sign any paperwork and to pay off the loan in the time allocated. Most people who get in over their heads do so because they are continually rolling their loans over. This may buy you more time to pay them back, but really it will cost you so much in fees and interest and all you’re doing is digging a hole you probably won’t be able to climb back out of.
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