Many people turn to payday loans when they are facing serious financial problems. According to one recent report from Pew Charitable Trusts, approximately 70% of the people often who take out payday loans do so to pay for basic necessities such as food and rent. These people believe that they will be able to pay their loans back after they receive their next paycheck. Unfortunately, they often find themselves too far in debt.
Why Do People Want Payday Loans?
Unscrupulous payday lenders are making a lot of money offering loans to desperate customers. There are reportedly more payday loan companies in the United States than McDonalds restaurants.
Payday loans can be a terrible way to get cash. Payday lenders charge interest rates of 50% or higher. Customers usually fall behind with their payments and may even face bankruptcy.
Unfortunately, many customers still use payday loans. They are a very quick way to get cash when you are in need. You need to be aware of the dangers of payday loans before you decide to take one out.
What are the Dangers of Payday Loan Companies?
Most people don’t know how dangerous payday loans are when they take one out. Here are some risks that you need to be aware of.
Payday loans are far too easy to take out. Almost anybody can receive cash from a payday lender within less than half an hour. Unfortunately, you will be committed to the contract after you have signed the contract.
Payday lenders charge higher interest rates than most other creditors. According to a study from the Center for Responsible Lending, most payday lenders charge an interest rate of about 400%. Most payday lenders know that their borrowers will be paying usury interest rates, but they don’t advertise those rates.
Payday loans are supposed to be repaid within two weeks. However, most borrowers can’t make their payments. The fees compound quickly and borrowers fall further behind. This is why the Center for Responsible Lending warns customers that they need to be extremely careful when taking out a payday loan.
Many people have to take out additional payday loans just to meet their payments on current loans. More than three quarters of payday loans are made specifically to people who are trying to meet current payday loan obligations. This forces them even further into debt.
Ted Connelly wrote a book called the “Road Out of Debt.” Connelly said that people end up paying four to ten times the amount of the original loan.