Family Issues

When you take out a payday loan, you are most likely entering a vicious and costly financial trap that you will find difficult or impossible to escape.

The payday loan is the most often sought out solution for a cash shortage.  It comes in many names, “cash advance loan”, “check advance loan”, “postdated check loan”, or “deferred-deposit check loans”.  It also comes in many varieties such as “faxless payday loan”, “online payday loan” or “same-day payday loan”.

For temporary and rare cash shortages, the payday loan is an easy solution.  But when cash shortages happen often, the payday loan is not the answer.  In fact, when the problem is the inability to budget well or the inability to control spending, the taking out of any kind of loan, particularly a payday loan, is a perilous step.

For example, you needed $200 immediately and so you borrowed from a payday loan lender.  This lender charges $30 for every $100 borrowed from them.  This is a 30% monthly interest.  Thus, in the next payday, you need to pay $260.  Unfortunately, you still have a cash shortage when the next payday came.  Thus, you opted to roll-over your loan and you must pay an additional fee of $50.

When the money you loaned was rolled-over, the whole amount, which is $260, will be carrying another 30%.  The total money you need to pay in the next payday will be $338.  And if you don’t pay this amount in your next payday, and roll it over to the next payday, you will be facing a larger amount to pay.

Some people, caught in this situation, may choose to take another payday loan.  This next loan will be higher ($400) to pay off the first one.  But it also means that on the next payday, you will be faced with a higher amount to pay.  If this second payday loan lender charges $30 for each one hundred, the amount to be paid will be a staggering $550.  And the cycle continues until the borrower is up to his neck in debt.  What began with a mere $200 loan has been bloated over 200%!

Comparing the interest rates of payday loan to bank loans and even to those of credit cards, payday loan interests are still higher.

This is the reason why people, before taking out payday loans must be aware of the potential problems that face them.  Some have the habit of relaxing and forgetting the reason why they were in debt in the first place.  And many of them tend to shrug off financial problems since they don’t pose a life-and-death crisis.  Ironically, becoming bankrupt is one of the reasons why people commit suicide.

Tags: budget, Credit Repair, Payday Loan, Payday Loans, Car Loans