Almost anything can happen that can cause you to be short on money unexpectedly. Your car could need a quick repair or a medical expense could come up without warning. For those types of things in life, being able to get a quick cash loan can be a lifesaver.
However, the reality is that the people who end up using Payday loans can often find themselves in an escalating cycle of debt. If it’s possible to apply for a personal loan directly from a reputable financial institution like your bank or credit union, that is always going to be the safer and wiser option.
The short-term loan companies use the convenience of their no credit check services and predatory advertising to lure people who may already have financial issues to add to their debts. In the case of payday loans, the theory is that you can get ahold of cash quick for a fee that is to be repaid with your next paycheck.
It seems simple enough until small things in life can go wrong making it harder and harder to pay back what you owe. With a personal secured loan, you will have a set repayment plan that will be manageable to ensure that you don’t overestimate your ability to make your payments easily without missing a deadline.
It may seem like the easiest solution to a short-term problem, but taking out a payday loan is much riskier than getting a personal loans for bad credit. Before you sign up for a temporary instant loan that you may not be able to pay back, consider some of the reasons that payday loans are never really the best solution.
Lending companies will advertise their borrowing rates as though they were a great deal, and to those that may not have a great understanding of finances and it can work like a charm. For example, the advertisement may say that you can borrow $100 for a fee of only $15 for up to 10 days. Seems simple enough. But, if you do the actual math and project those fees forward to equal the interest for a year you are paying about 400% on what you borrowed.
With a bank or formal lending institution, you can arrange a much longer and more reasonable repayment schedule that is based on all of your information. A loan officer will take your income and expenses into consideration when drafting an agreement that is much more likely to be feasible for you.
Getting Stuck In The Borrowing Cycle
Payday lenders report that over 75% of the loans that they make are for payment on previously lent amounts. If you are unable to pay back your temporary loan by your next payday, the lender will allow you to take out another loan, with another fee to cover what you owe. So now you owe more than you originally did, plus you may have had to borrow more this time to cover any living expenses. With a personal loan, your debt amount, including your lower interest rate, will never increase.
Access To Accounts
If you set up an automatic withdrawal agreement for your payday loans they will access to your bank accounts. While this seems to make sense on first consideration, you will have extreme difficulty if you try to interrupt this transaction if you know that it won’t go through.
You will likely not be able to stop the lender from repeatedly trying to take out their payment. This can result in not only penalty fees directly from the lender but NSF charges from your bank as well. If you have the same issue with your bank you may still be charged with one NSF fee for a missed payment, but you won’t be double charged.