Paydays Loans: Now Available EVERYWHERE
You may have noticed those payday loan locations, under many different brands, popping up on streets near you. In the past 5 years this industry has exploded, literally growing in size more than 250%. This means more and more people are falling victim to these predatory lenders as they continue to broaden their consumer base. Learn what these payday loan centers really are charging you and how they can lead to personal financial disaster for many.
Look at What You Are Really Paying
When consumers look into getting a payday loan, it is for one simple reason: they need cash, and they need it fast. In times of financial crisis, the threat of an unpaid bill or repossession; it is understandable that someone will need money to get them though until their next payday. However, not many people stop and look at what they are really paying in exchange for that quick cash. Buried in that small print and certainly not advertised on the sign outside, is an incredibly high rate of interest paid. The average interest rate charged on a short-term payday loan is a whopping 485.6% on a two week loan. That adds up to a lot of money. Suppose you borrow $500 to get your through until payday. For every $100 you will pay $17.50 in interest, meaning that loan will cost you $87.50.
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The Real Cost of Payday Loans: The Cycle of Payday Loan Debt
What these predatory lenders will never come out and tell you is they are designed not to carry you until your next payday, but to trap you in a debt cycle. The design is simple: prey on people who have trouble managing their money. Lend them money at astronomical interest rates. Wait for the loan to expire and offer the borrower the option to pay off the loan by retaking another. All the while, charging excessive interest rates. In essence the borrower is borrowing to pay off the interest rates and is being charged for their own paycheck money. It is a vicious cycle, and once caught up in, expensive and difficult to quit. The U.S. Government has passed recent laws in an attempt to curb the onslaught of these predatory lenders operating in the U.S. Learn about California’s SB 834 efforts to help curb this problem.
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Break the Cycle
If you find yourself already in this tangle of revolving debt and interest payments, seek help here. There is a simple way out of this cycle: pay off your last loan without extending it. Now the easy part: never ever apply or accept another payday loan period. Understandably there will be times in your life where you need quick cash for unexpected bills or emergencies. How you get this needed cash is your decision and if made wisely will not include a payday loan. Try these alternatives to payday loans:
Borrow from a friend or family member. While not always a comfortable situation or topic to bring up, it is much less costly than a payday loan. You may even think to offer this friend or family member a reasonable interest rate for their help.
- Talk to your employer. Many employees are not aware that their companies will help them out with an advance or short-term loan. Some companies are actually set up to perform this service and you only need contact your manager or human resource department. These loans are usually low to no interest loans between you and your employer. Typically the loan is paid back by deductions from your payroll checks.
- Credit Cards are a better option than payday loans, even though you are incurring debt. Charge whatever bill you have that is causing you a cash flow problem. If you absolutely need cash, use your cash advance on your credit card to get it. The interest rate may be high and cash advances may include fees, but they cannot hold a candle to the high cost of payday loans.
- Personal line of credit from your bank or credit union. These loans too may not have the lowest interest rates as they are unsecured, but once again beat any and every payday loan.
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