There are plenty of options when it comes to payday loans, and they’re a popular solution for people who need quick cash. Moreover, they’re easy to obtain, and a credit check isn’t required. Usually, lenders will only need a checking account, a valid ID and proof of income.
Unfortunately, while these loans are easy to secure, they’re not a sustainable solution to your money problem. Below are some of the reasons why.
Payday loans are expensive
The main reason why payday loans cannot solve your financial problems is the high-interest rates. You could, for example, find yourself paying $30 for every $100 you borrow for just two weeks. If you don’t have the money after two weeks, the lender will renew your loan for another two weeks, with additional costs. You can quickly end up paying more in interest and fees than you ever borrowed.
Payday loans can quickly lead to a debt cycle
Most payday loans are to be repaid within two weeks, but most people take more time to repay the debt. In addition, because of the high-interest rate and fees that come with payday loans, you may easily get caught up in the vicious cycle of rolling over the loan or taking out another loan to pay off an old loan.
Payday loans can damage your credit score
Just because payday loan lenders don’t ask about your credit score doesn’t mean the loan you get can’t affect your score. If you default on your loan, your debt could be placed in the hands of a collection agency. The agency may take you to court, and your credit score may be ruined if the judge rules in favor of your lender.
Payday loans can make a bad financial situation worse
If you’re trapped in a cycle of payday loan debts and are struggling to make ends meet, filing for bankruptcy may help you eliminate your unsecured debt and give you a fresh financial start.