Payday loans refer to the quick, easy and unsecured loans usually offered to borrowers by small and medium financial lenders as they await their payday. Once a borrower determines the loan amount, he desires plus the lending fee, he writes it on a cheque and gives it to the lender who keeps until a post-payday date when they can cash it, in case the borrower does not pay it fast. These loans are usually associated with more harm and good but are usually a much-needed financial saviour when times are tough at the end of the month. There are several factors that lead the general public to consume payday loans in their day to day life Cash Max Loans ; some are within their control while others are just beyond their control. For instance, certain emergencies may occur in the weeks nearing a person’s payday that may cause them to turn to a payday loan as their alternative, or one may need to buy something out of luxury and impulsive that they cannot afford yet until their payday. Another very major contributing factor to the prevalence of payday loans is late payments by employers. Sometimes contractors fail to honour their contracts and as such, employees have to suffer the pains of late payments, this may lead those who have no other source of funds to turn to payday loans. While these loans may seem like they are saving your life during times of financial distress, there are usually certain underlying risks attached to them that borrowers do not see in the beginning.
These risks include:
- Extremely high interest rates- The interest rates charged by payday loan lenders are usually staggeringly high. This is because however much most states regulate their maximum loan interest rates, these loans fall under a special category that warrant them to charge such high interest rates. They are therefore not the most attractive alternative when it comes to interest rates.
- Your wages are used as collateral- Because the loans are based on a borrower’s next income; some borrowers use those wages as collateral on the loan. This means that failing to pay back the loan and interest in the stipulated days can cause a borrower to lose their next income. Surviving in the US without income to look forward to can be extremely tough, especially if you have been going to work as usual.
- The lenders are sketchy because there are loopholes in their regulation. – Because there are loopholes in how most states govern and regulate these kinds of loans, most lenders take great advantage of their borrowers by subjecting them to extra loan features that end up costing the extra fees on their loans. This is usually very unfortunate and I the reason why some states in the US have gone as far as banning these loans completely.
- High dependency rates- If a payday loan saves your life once, you are obviously going to turn to them anytime a little financial discomfort is looming at your door. Without realising it, most borrowers are heavily dependent on payday loans and as a result, most of their salaries when they finally earn them go towards repaying these loans.
These are some of the risks associated with payday loans.