While payday loans might seem like quick, easy solutions to a monetary emergency, beware the way these cash advances tie you to lender-favored contracts. These risky commitments, taken against your next paycheck through a third-party lender, can quickly put your financial security at risk. Here are four strong reasons why you should not be tempted to take out a payday loan:
- High Interest Rates: In some states, the APR can range anywhere from 300% to a whopping 900%, if you can’t pay off your loan by your next payday.
- Fees: Every time you fail to pay back the cash advance on time, a new fee is added, and new interest calculated. The fee can be $15 for every $100. Or more!
- Collection Practices: Some lenders may call your work or family members, pestering them about your loan and fees. They may even threaten to have you arrested. These practices, though rare, do happen, and you should contact your local attorney general if you’ve taken out a payday loan and find yourself in this situation.
- Credit Score: While many payday loan lenders don’t require credit checks, taking out the loan DOES affect your credit score! Future lenders may not approve you if they see that you’ve taken out a payday loan multiple times.
Even if you feel confident you can pay back your loan by the first deadline, the frequency at which people find themselves unable to do so should make you proceed with caution. The risks of a situation like this make it all the more important for you to start an emergency fund for yourself, so you’ll avoid payday loans altogether.