There is no denying the popularity of payday loans. If you don’t have enough cash for a car repair or another emergency expense, a payday loan can come to your rescue. But although these loans are readily available and easy to qualify for, they may not be the best choice for your finances.
Payday loan debt can be extremely dangerous, and unfortunately, some people get in over their heads. Before signing your name on the dotted line and taking out a loan, make sure you fully understand the dangers of these particular loans.
1. A payday loan doesn’t help your credit score
If you need to establish credit, a payday loan will not help your situation. These lenders do not conduct traditional credit checks. Likewise, they do not report the loan to the credit reference agencies – unless you default and they take legal action. Therefore, repaying the loan on time will not add positive points to your credit score. In this case, you’re better off applying for a traditional bank loan or getting a credit card.
2. A payday loan has short repayment terms
Typically, payday loans are due in full within 14 to 30 days, which doesn’t allow a lot of time to come up with the cash. This is different from traditional bank loans, which spread payments over several months or years.
3. A payday loan has high finance fees
Payday loans do not require a credit check. As such, these loans are risky for lenders. To minimize the risk, lenders charge ridiculously high finance fees. For example, you can expect to pay about £25 per every £100 you borrow.
4. A payday loan can create problems with your bank
When you apply for a payday loan, you give the lender permission to automatically draft your bank account on the due date. For this matter, it is important that you have the money available in your account. If the money is not available, you will be charged overdraft fees by your bank. And if the payday lender resubmits the draft before you deposit cash in your account, you can incur additional overdraft fees.
5. A payday loan can be addictive
You can literally apply for a payday loan and have cash in your account within the hour. Because these loans are so simple, some people become addicted and fall into a trap of always applying for a loan when they need immediate cash. This can result in owing multiple payday lenders at the same time. And with multiple loans, there’s an increased risk for payment problems.
How to Get Out of the Payday Loan Cycle
Fortunately, there is help for anyone who’s caught in a payday loan trap. Payday loan debt help can be the answer to your problem. These lenders are relentless. If you owe money, they may call your house, send threatening letters and even pursue legal action. This could result in county court judgments and a damaged credit score. But unknown to many, there is a way to settle payday loan debt.
Settlements aren’t highly publicized. However, if you don’t have money to pay off your payday loan debt, and you want to get lenders off your back, a professional company can work with the lender to help you settle the debt for less than you owe. It’s simply a matter of knowing where to turn and asking for help.
Of course, for a debt settlement to work in the long run, you have to make smarter decisions in the future. For example, you might build an emergency cash reserve by shopping less and developing a savings plan. Or if you run into payment problems with creditors, you can call up the company and ask for an extension. This can buy you additional time, potentially eliminating the need for a payday loan.