Many people turn to payday loans
when they are facing serious financial problems. According to one recent report
from Pew Charitable Trusts, approximately 70% of the people often who take out
payday loans do so to pay for basic necessities such as food and rent. These
people believe that they will be able to pay their loans back after they
receive their next paycheck. Unfortunately, they often find themselves too far
in debt.
Why Do People Want Payday Loans?
Unscrupulous payday lenders are making a
lot of money offering loans to desperate customers. There are reportedly more
payday loan companies in the United States than McDonalds restaurants.
Payday loans can be a terrible way to get
cash. Payday lenders charge interest rates of 50% or higher. Customers usually
fall behind with their payments and may even face bankruptcy.
Unfortunately, many customers still use
payday loans. They are a very quick way to get cash when you are in need. You
need to be aware of the dangers of payday loans before you decide to take one
out.
What are the Dangers of Payday Loan Companies?
Most people don’t know how dangerous payday
loans are when they take one out. Here are some risks that you need to be aware
of.
Payday loans are far too easy to take out.
Almost anybody can receive cash from a payday lender within less than half an
hour. Unfortunately, you will be committed to the contract after you have
signed the contract.
Payday lenders charge higher interest rates
than most other creditors. According to a study from the Center for Responsible
Lending, most payday lenders charge an interest rate of about 400%. Most payday
lenders know that their borrowers will be paying usury interest rates, but they
don’t advertise those rates.
Payday loans are supposed to be repaid
within two weeks. However, most borrowers can’t make their payments. The fees
compound quickly and borrowers fall further behind. This is why the Center for
Responsible Lending warns customers that they need to be extremely careful when
taking out a payday loan.
Many people have to take out additional
payday loans just to meet their payments on current loans. More than three
quarters of payday loans are made specifically to people who are trying to meet
current payday loan obligations. This forces them even further into debt.
Ted Connelly wrote a book called the “Road
Out of Debt.” Connelly said that people end up paying four to ten times the
amount of the original loan.
