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To poor or financially struggling Americans, the Payday Loan often seems like the only alternative to their cash flow problems.
Payday loans are those small loans that are advertised as an easy way for cash-strapped people to survive until they get their next paycheck.
These loans are available at payday loan stores throughout the country, more prevalent in economically depressed areas and big cities, but are gaining popularity on the internet.
The down side of these payday loans is the high price tag.
Finance charges for these small loans range from 15 to 30 percent of the amount that is being borrowed.
Since the 15 to 30 percent is for just a few weeks, it is comparable to a loan with an annual percentage rate of almost 800 percent.
Due to the fact that these payday loans are easy to get and don’t require the traditional credit checks, payday loan companies prey on people who are already in financial troubles.
A missed payment or inability to pay will result in even more debt problems for the borrower.
How Payday Loans Work
A payday loan is a short-term loan. You borrow a small amount and repay it with your next paycheck. It’s fast and convenient. Many people turn to these loans during emergencies.
But lenders charge very high interest. A $500 loan could cost you hundreds more in fees and interest. That’s why payday loans are expensive.
Why the Interest is So High
Lenders see payday loans as risky. Many borrowers face financial struggles and may miss payments. To cover the risk, lenders charge higher interest rates. The faster they offer the money, the more they charge.
Is 700% Interest a Good Deal?
The answer is no. Even though payday loans are quick, they can trap you in debt. Many borrowers keep rolling over loans, paying fees again and again. It becomes a cycle that’s hard to escape.
A high-interest loan should only be a last resort. It can make your financial problems worse instead of solving them.
If you find yourself struggling with debt or would like to find out about becoming debt free, call Debthelper at 800-920-2262, or visit @ www.debthelper.com.
