Pam Etuglavu's Financial Advice

The risks of payday loans

Getting a payday loan can seem to be the ideal solution when there's an unexpected expense or your bills are past due. Payday loans come with certain requirements and most can be approved within one day, making them a viable source of immediate cash. However, you should learn about the risks of payday loans before signing.

Payday loans cause some to stay in debt

For a lot of people, financial emergencies leave them reaching for the first solution at hand. Many of these people sign for a payday loan without reading its terms and conditions, leading to hardship when it's time to repay. They end up getting an extension on the loan, resulting in more fees and higher interest. Others end up taking out another loan to bridge the gap, and a cycle of debt is started.

High Interest Rates

Most payday loans come with high interest rates, and some can reach as high as 900%. The bigger the loan, the higher the interest rate- many people end up owing more in interest than the loan was worth. Be sure to read the loan's terms and conditions before applying, and pay attention to how interest is calculated. It's usually due before or at the same time as the loan.

Unethical Lenders

The payday loan industry isn't heavily regulated, but there are some honest companies along with the bad ones. If you take out a loan with a less-than-honest lender, you could find yourself getting deeper in debt and dealing with collections agencies. To avoid this, investigate the lender with the BBB.

There are definite risks in signing for a payday loan. If you need money right away and there is an emergency, a payday loan can be an appropriate solution. Before you take out a loan, carefully weigh the pros and cons and ensure that all other alternatives have been exhausted.