Even though payday loans provide a helpful service to hard working people who need to pay for emergencies, they sometimes take the heat for a bad economy. The problem is that the economy is so uncertain and everyone’s budgets keep getting tighter.
Here are reasons why it’s wise to study payday loans before pursuing them:
Why People Resort to Loans
The fact that most individuals engage in some type of loan activity in their lives raises the question – why. The answer is that most Americans do not make enough money to pay for their needs, desires or emergencies. In order words, taking out any kind of loan is more of a symptom of a bigger economic problem.
There are several reasons why someone would want a payday loan instead of a conventional loan, such as:
- Poor credit, unable to qualify
- Medical emergency
- Sudden unexpected bill such as auto repair
- School books, tuition or other education fees
- Small business investment
Reasons why they would opt for payday loans:
- Credit check not required
- Quick approval process
- Financial privacy
Since these loans are short term, they can lead to increased debt with a higher than normal interest rate if not paid on time. If the borrowers can’t pay back the loan all at once, they roll it into a new loan and end up being in a debt trap as termed by payday loans critics. So it’s important to pay back payday loans on time to avoid such circumstances.
The payday lending industry has taken steps in recent years to improve its image among consumers. At one time, they were accused of being predators of low-income individuals, but stricter laws have lowered fees. Payday lenders must now disclose all terms upfront on the contract. In other words, they can no longer hide fees through confusing jargon.
Statistics from the Consumer Financial Protection Bureau show that 69% of payday loan borrowers take out multiple loans per year. That raises the question of why they are constantly living beyond their means. Payday loans certainly serve a useful purpose for fast cash, including short vacations and gift giving.
The reason payday loans work for responsible individuals is that they are only for small loans, usually under $1,000 and are expected to be repaid quickly. They work best in between paychecks when you need extra cash that you know you can repay within a few weeks. It’s essential to handle payday loans responsibly to avoid a debt trap.
Understanding all the aspects before applying for the payday loans will help you overcome the fear and become a responsible borrower.