Disadvantages of payday loans
We have told you about some of the advantages of payday loans, but to be fair most of these advantages are applicable to most kinds of finance.
So what are the disadvantages of payday loans.
- Payday loans are expensive
Payday loans have very very high APR most of them in the 1000%+ bracket. The providers of the loans will tell you the APR is high because the loans are high risk (which make sense). However that doesn’t stop them being really expensive so you want to avoid this at all costs if you can. - Payday loans can be addictive
People taking out short term small loans to fix finance problems at the drop of a hat can get addicted because its all too easy to get into the habit of relying on them. It may start out well, you get a small loan to fix your car and pay it off on time, then its your mums birthday so you get another one and pay that back on time. Then you really need a holiday so you get a loan to cover a week in Spain, but when you get back you cant afford to pay it back on time, now the problems can really start. - They have to be paid back within 1 month (typically)
If you cant afford something today, chances are you wont be able to afford it in a months time when the loan is due to be re-paid. Try to find a longer term finance, so that you can spread the cost making it more affordable. - Missing a payment has severe consequences
As with all finance, if you miss a repayment then they company will pursue you for the money and will probably charge you fees for missing payments. This can very quickly get out of control, you should also bare in mind that the big banks tend to be much more lenient on late payments than smaller payday loan companies. - Payday loans don’t fix the problem.
Despite what you think the short injection of cash wont fix the problem, what you need to do is address the problem of not having enough money to start with.
But I really need some cash now!
If you really are having finance problems then seek assistance and financial advice before taking out any high interest loans such as payday loans.
If you do decide to get a payday loan make sure you have a plan on how you will get the money to pay the loan back in full on time. And if you are unable to pay back the money on time phone the lender BEFORE payment is due and negotiate a payment plan.
I have seen posts on forums of people who have taken out payday loans and been unable to pay the loan back, so they decided that the best course of action is to shut down their bank account, and ignore all letters from the company requesting payment and threatening court action. This is not smart or clever.
