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Payday loans are a worse debt trap than credit cards

On Behalf of | Jun 18, 2020 | Bankruptcy

When people talk about predatory lending, they often focus on credit card companies, many of which can charge interest rate percentages that range from the high teens to the low 30s. Paying 30% interest may seem unfair and unreasonable, which may make people look for other sources of money when they need it.

In comparison, payday loans, many of which have specific fees, may seem like a more reasonable option. Some people even take out payday advances to pay their credit card bills. Unfortunately, payday loans or cash loans are among the most dangerous and predatory of all kinds of lending and can lead people into serious debt trouble.

The fees you pay add up to massive interest rates

One of the reasons people don’t understand the risks involved in payday loans is that the companies aren’t exactly transparent about the interest and fees people will pay. If someone continues to defer repayment by taking out repeated, short-term loans, the end cost could be as much as 300 or 500% interest when compared with the initial loan.

Interest rates that high could potentially violate the law. That is one reason why these companies call those costs fees or lending rates, rather than interest.

Bankruptcy can get you out of the cash borrowing cycle

Filing for personal bankruptcy means that you receive an automatic stay that protects you from collection activity. Your automatic stay will help you with credit card debt and with payday loans. Instead of continuing to borrow from the same company that is charging you insane interest rates, you can break the cycle and take control of your financial situation.