Payday loans are perfect; they are easy to get for just about anyone. What most people do not know is that they come with a really high interest rate that could put you in danger financially. It does not seem like a lot of money to many because payday loan lenders give clients as low as 100 dollars.
Payday loans are great when you are in dire need for finances. Financial emergencies can make you overlook factors about payday loans that could be potentially financially risky. Understanding the risks that come with payday loans will help you make better decisions when it comes to loans and other finances.
Here are some of the most common risks associated with payday loans
Not being able to pay the loans on time
The main targets of payday loans are people who live in middle- and low-class economies. This means most of them live from paycheck to paycheck and in need of financial assistance now and then. Since payday loans are easy to get, they are many people’s first choice when there is a financial emergency. At first, it may seem convenient because you can pay it back as soon as your paycheck arrives. What you do not realise is that you are creating a bat and expensive habit.
What happens when you do not have enough money to pay back the payday loan by the next paycheck? You will not have enough to make the payments and the interest on the payday loan will increase. To avoid this, you should really consider if you need the money and look for alternatives for the payday loan.
Risk of Taking out other loans to clear your payday loan
What happens when the interest loans on a payday loan keep growing because you cannot make the payment? It could really hurt you financially. The interest loans on payday loans are higher than interest rates on all other loans, which means paying it back is quite expensive. If you live from paycheck to paycheck, then you might lack the extra cash to clear the payment. Most people turn to consolidation so they can clear the payday and clear the loan later. This could lead to bigger problems like poor credit when you do not clear the consolidated loan on time.
You risk getting deeper into debt
When you take out a loan to clear your payday loan, you risk getting into debt. This means that you also have to clear the second loan before its due date and that can go so wrong when ignored. Late payments will affect your credit score and that affects your ability to get another loan or better loan in the future.
Before you sign up for a payday loan, you have to consider several other alternatives. You could ask your friends and family for a loan, get an advance at work or even get a short-term loan with better rates from another lender and use your credit card. Payday loans are not with risking your finances, credit scores and future loan qualification.