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Why You Shouldn't Take Out a Payday Loan
When you've run out of money or been hit with an unexpected bill, payday loans are a tempting proposition. Getting a temporary loan that you can pay back on your next payday (hence the name) sounds like a perfect solution to short term money worries but sadly, too many people jump headfirst into taking out a payday loan without really understanding what they've got themselves into. Here are some of the reasons why payday loans aren't a good way to deal with cash flow problems.
The interest is terrifying
If you thought credit card interest was bad, wait until you see the astronomical interest attached to payday loans. The amount that you'll have to repay is often buried deep into the small print but you can expect to pay something above $15 on a $100 payday loan. This might sound reasonable, but if you're already in a tight spot financially, that extra $15 could be just that little bit too much to pay back.
You need to pay it back on your next payday
This isn't a hard-and-fast rule that can't be broken, because it is possible to roll the payday loan balance over to the next month but you need to deal with payday loans as soon as possible if you don't want to get in too deep. Every time you carry your payday loan balance over to another month, you're racking up more and more interest - interest that you probably can't really afford to pay. Carry the balance over for multiple months and you could easily find that the interest becomes more than the original loan. If you're really unlucky, you might also get hit with charges for rolling over the balance to another month.
What else can you do?
If you're stuck for cash, payday loans might seem like the only answer to your predicament - especially as the advertising stresses the promises of fast cash (often within hours of applying), and this is always going to be incredibly appealing to anyone with money worries. Instead of turning to payday loans, think about what else you can do to access the cash you'll need to see you through. Perhaps you can get an overdraft from your bank, use a credit card (and pay off the balance in full as soon as possible) or borrow the money from family or friends? These alternatives might not give you the money as quickly as a payday loan but at least you won't be hit with terrifying interest charges.
The bottom line
Payday loans might look good on paper but it's an incredibly expensive way to tide yourself over when you're broke. It's fine if you use them responsibly and pay back your original loan plus interest as soon as it's due, but you can quickly get into trouble if you need to roll over the loan to the next month as the interest just keeps piling on top.