“What are the disadvantages of payday loans?” Are there really any disadvantages?
To be very honest, disadvantages arise when you do not get in touch with the right payday loan firm or the payday lenders in California.
While payday loans are a great advantage for those with bad credit there are a few disadvantages of payday loans. Let us take a look into the disadvantages of payday loans.
Usually payday lenders rely on repeat customers, they often target low-income earners and charging compounding interest for cash advances. The obvious problem with payday loans is the extremely high interest rates. The fee for payday loan varies from $10 to $30 per $100 borrowed. This will turn as annual interest rate of 261% to 782%.
Payday loans are usually considered as a predatory loan that is unfair, misleading and unaffordable. A few also claim that payday loans potentially trap customers in a cycle of never ending debt. Scroll down to know more disadvantages of Payday Loans.
Disadvantages of Payday Loans
Some of the common payday loans disadvantages that may arise are as follows. But, these are all can be avoided when you know how to tackle your finances and pay for the payday loans that you take.
The Cycle of Debt
One of the big disadvantages of payday loans is that you can’t pay them gradually like other mortgage or a vehicle loan. You need to pay back the loan with whole sum interest and principal just within 2 weeks.
Most of the borrowers renew their loans or take new ones and extend their loans. With this many borrowers will end up a lump sum this total more than the budget they can possibly handle.
As said, most of the borrowers tend to renew their payday loans. However, the renewal fee is very high. So although the borrowers keep making the payments, the debt amount they owe will never get smaller.
For instance, if a borrower starts with a $500 loan and a $50 interest payment and keep renewing the loan for every 2 weeks, then for 4 months the borrower end up paying around $570 in interest but still owe the principal amount $500.
Learn more about where you can apply for the payday loans in California.
The payday loan lender will collect a debt amount right out of your account. That’s not an issue. But if the account is empty, the lender won’t stop the attempts. They keep trying to collect money making several attempts.
Also, the lender starts harassing with payment reminder calls and letters from lawyers. Sometimes lenders may approach collection agencies and they sue you for the debt.
You need to avoid these common Payday loan pitfalls.
One major advantage of payday loans is they don’t check credit before issuing you a loan. Since it’s too expensive to run a credit check on each and every borrower, they don’t check the credit. While we consider it as an advantage, payday loan still impacts credit.
If you fail to pay back your loan, the credit bureaus will find out about it. However, you can avoid this con by making on time repayments. Also, these loans don’t help you build credit. Although you pay the loan on time, your credit score will not improve.
Note: The payday loan providers don’t usually report any of the loans to the major credit bureaus. You could consider this as a possible warning sign. Also, remember the payday loan lenders have access to your bank accounts.