Even people that are great with their money can find themselves in a tough situation. Unexpected expenses hit and all of a sudden, your budget doesn’t add up. But if you can just get a bit of extra money this month, you can straighten everything out and get back on track. That’s where payday loans come in.
A payday loan is a short-term loan that is approved quickly with minimal checks, so it’s a common option for people that need fast cash. In some cases, they can be beneficial. You get the money quickly so you can pay off any outstanding expenses and they are available to people with bad credit. There are also no limitations on what you can spend the money on, so if you have a few different bills to cover, they can be useful. However, payday loans can also be very dangerous and it’s easy to fall into a spiral of debt so you need to be very careful about how you use them. Here’s how payday loans can drag you into debt.
The Interest Rates Are Massive
When you take out a payday loan, always check the interest rate. In most cases, the rate is incredibly high compared with any other type of borrowing. They are more accessible for people that don’t have access to credit elsewhere, but that comes at a price. People are often fooled by this because they only borrow a small amount, so the extra interest doesn’t look like much. But when you consider it as a percentage of the amount you borrow, you’ll see how high it is. Unfortunately, people get into a situation where the interest eats into their budget the following month and they find themselves short again, so they take out another loan. Eventually, you become reliant on them to make ends meet every month and soon you find yourself in a debt spiral.
The Payment Terms Are Not Flexible
Although they are flexible in terms of what you spend the money on, they are not flexible in terms of the repayment plan. You will have to pay all of the money back the following month and if you can’t, the interest payments will keep spiraling out of control. There are other types of fast cash loans, like installment loans, that give you a lot more flexibility. Being able to pay off the loans over a longer period makes it so much more manageable and you can factor it into your budget.
They’re Very Tempting
The most dangerous thing about payday loans is how easy they are to get. You don’t need to get a credit check or provide documentation and they are approved in a matter of hours. This makes them very tempting and even though people start getting them to cover important expenses, they may start getting them for other things and this becomes a very slippery slope.
Although payday loans can be useful in certain situations, they are also very dangerous when used in the wrong way. So, look into your other options first and only use payday loans if you are confident that you can do it responsibly.
