• Payday Loans

Avoiding Payday Loan Traps

Payday loans, even though they look very reasonable on the surface, are nothing but a big kick financially in the stomach. It happens often to those who can’t afford that, too. According to a survey, almost twelve million people in America take these payday loans each year. And it is not hard to imagine that most of them who take out these loans actually can’t afford it. Typically, the people who borrow payday loans are in the age group of twenty-five to forty-four years old, people without a degree from college, and those who make less than $40,000 a year. A majority of the borrowers, almost fifty-eight percent, have trouble meeting even their monthly expenses almost half the time and turn to payday loans as an option to overcome the shortfall.

Payday loans are short term, small loans that’s dependent on your paycheck. When you apply for a loan, you need to list your upcoming two or three pay dates in the application. Once you get approved, you need to give them a postdated check for the loan amount plus the rate of interest and their fees all included. When the next payday arrives, the lender can go and collect the balance, unless you opt for rolling the loan over till your next paycheck date. Most of the lenders of payday loans do not consider your previous credit history, so even people with a bad credit will still be able to get an approval as long as they have an income source. The lenders can even issue the cash within days or even hours sometimes.


Basically, payday loans are a bad choice. They have very high fees and very high rate of interest which can go up to three hundred percent and up. These interest rates look similar to credit cards but the credit card lenders take back the amount over a period of one year while the payday loan lenders will collect their interest amount in two week’s time too. It will turn out to be a triple digit rate of interest. When the loan gets rolled over and gets extended, the fees get added up. They allow borrowers to rollover the loan to the next paycheck date if they agree to pay added fees and increased rate of interest.  Thereby, the borrower gets trapped in a vicious circle of paying the fees and the interest because they are not paying the principal amount but just these fees and interest. According to a survey, two out of ten borrowers are able to pay back their loans on the due date and the rest just get caught up with the fees and interest.

Some people are of the view that short term credit products are important as a financial tool from some unexpected circumstances. There is evidence against the theory, too, and that most people can still very well survive without these types of loans.

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