Payday Loan Drawbacks

Payday loans come with many hidden drawbacks which do not seem to be apparent at the outset. Many lenders do not give all the information to the borrowers, keeping them in dark. Some of the borrowers fall into a rapidly escalating debt situation. A survey indicated that almost 10% of the bankrupt families had one or more than one Payday loan.

The main drawbacks of Payday loans are:

Late Repayments: When you pay your expenses from the next paycheck its entirely possible that nothing is left to pay for that Payday loan you took last month so what to do now? Roll over the loan, that’s the only option. This will kill you as the loan comes with heavy interest rates, an average APR of 390%!!

Financial Information: If you are taking the loan through online application, you will have to send some financial information on the internet, which may or may not fall in good hands.

Costs of Payday loans: Even if you are repaying the loan in the agreed time frame, you have paid interest of around 390% at an average. This is way more than the market rate.

Different rates of interest: The rates of interest offered vary from company to company and they vary widely unlike banks where the variation is less.

Faceless lenders: If you apply on the net, you are In fact dealing with faceless lenders and this carries some risk.

No control on finances: On one hand, easy availability of loans is good for emergency but this may put some borrowers in comfort mode, thereby they may not be able to control their expenses.

Partial payments not accepted: You can not make partial repayments in most cases, thereby its either zero debt or full debt. This means that rollover looms largely in case your next paycheck does not leave you enough to pay for this loan.

All the above make payday loans a tricky solution to ones financial woes. The main trap used by some lenders is the high cost of debt that is recharged once a rollover starts.

This works like this: For a loan of $100 you pay a fee of $15 which amounts to an APR of 391%.This will be rolled over every time you default on the loan. This makes the total interest huge to pay in the end.

Payday Loans are good if you are extremely sure that you will be able to pay them in one payment in the agreed period, which is when the next paycheck arrives.