Payday loans might offer a short-term solution to temporary financial problems but in the end these loans keep you in a debt cycle. If you get payday loans regularly, you are always using part of your check to repay the loans. As a result, you are not able to build savings or take care of your regular expenses. Here are some other reasons to avoid payday loans.
High interest rates
One negative aspect of payday loans is the high interest rates. Depending on the lender, you can be charged up to 9 percent interest. In some cases lenders' interest rates surpass those of regular credit card companies. In the end, you lose money.
Extra fees
When you take out a payday loan, you are charged a service fee that can be as high as $17 depending on the lender. This makes payday loans more expensive than average personal loans you would get from the bank.
Privacy issues with your bank
If you take out a payday loan, remember that the lender can access your bank account in order to obtain the funds you owe. If they cash the postdated check you give them and there are no funds in your account, you will have to pay overdraft fees.
The way they go after unpaid debt is not pleasant
If you fail to repay what you owe, payday lenders might make harassing phone calls or various threats. In addition to this, the lender may charge bounced check fees each time they cannot cash your postdated check. The hassle of dealing with these collection attempts is one more reason not to get a payday loan.
It promotes instant gratification
Not all people obtain payday loans for things that are unnecessary, but because these loans are so easy to get, it can be tempting to give in to instant gratification. It is better to save money for what you want than to have to deal with the above-mentioned issues surrounding payday loans.
Payday loans hurt your credit score
Another reason to avoid payday loans is because nonrepayment of the loan could cause your credit score to suffer. Bank lenders look at credit reports and scores, and if they see too many outstanding debts, they will see this as evidence of your inability to repay a loan.
These loans hide deeper money issues
Sometimes poor money management drives people to get payday loans. Maybe they do not put aside adequate funds for emergencies or they struggle to pay bills on time. Or the issue might be that they are in need of a second income. Payday loans are not a good solution to these problems. The solution is to make lifestyle changes so that their finances will be in order.
Payday loans are attractive because your needs are met right away. But in the end they do more harm than good.