Have you ever been stuck financially, your savings account has barely any balance and the only way you thought would help your situation is a payday loan? You went ahead and applied for one, and it gave you such a big headache, and you swore never to pick a payday loan again? I’m not saying payday loans are the worst choice of credit, but there are friendlier options to outsource funds.
Payday loans are short term loans where employed people borrow, promising to pay when their pay check arrives. However, most of the time you find that those borrowing may be in substantial debts and they end up having difficulties paying back the money. Sometimes, people are forced to borrow from payday companies most especially if their credit rating is poor.
However, below are some reasons why people should avoid payday loans:
Payday loan lenders may sometimes be very convincing when giving out information to people interested in the loans. They may choose to withhold some crucial information which they know could reduce chances of a client opting for such loans. Such companies have mastered the art of persuasion and will convince you on taking the loan.
It is always important to find out all the information there is to know so that you know what you are getting yourself into. Sometimes, these companies may omit information on what interest rate is charged and after how long should the loan be fully paid.
Of all lending institutions available, payday loans are by far the most expensive regarding interest rates. Putting into consideration that the loan is short term, the interest rates are higher and can be up to 300%.
Failure to pay results in accumulation of the debt as the interest rates applies to the amount that is not paid. Sometimes, the interest rates may increase after you have been unable to pay the loan.
Before applying for a payday loan, analyze your financial situation and establish if it’s possible to pay back the loan comfortably. After analyzing, if you find that it will be a challenge; do not apply for the payday loan.
One of the major ways payday loan companies make money is through extended loans. Sometimes, people may not be able to pay the loan on time. Therefore, they keep paying the principal amount and the interest rate charged. It is at this point that most companies cash in large sums of money. People may end up being deep in debt such that they are unable to pay the loan.
It is during such an occurrence that the once very warm lenders become cold towards you and pressuring you to pay.
There have been cases where clients have been unable to pay back the payday loans. After frantic efforts by the company to demand payment to no avail, they take extreme measures. If the loan is immensely big, they end up auctioning the client’s assets in a bid to recover their money. Payday loans are a risky option because you can watch your once hard earned assets being driven away all because of a payday loan.
Limited Repayment Period
An inconvenience of these loans is that they are only available for short term periods. Most have a maximum of a single month repayment schedule. During this time, the interest rate could be on a daily basis, weekly or bi-weekly basis.
There are other better options other than payday loans especially if your credit score is poor. One of the ways you can rebuild your credit is through second chance banking. Just as the name suggests, they are banks that help people recover from their failed financial moves.
Sometimes, it may be your checking account was closed by the bank for cases such as not having enough funds in the account or cases of over drafting. Second chance banks don’t have Chex Systems where they can retrieve your checking history. They will help you get back to your feet when you are knocked down financially.
There are many options of second chance banks available for people willing to sign up. Some include BBVA Compass, Fort Sill National Bank, Suntrust Bank, and many more. One significant advantage of these banks is that you can easily access your account anytime.