Sometimes a payday loan is the best option when you’re really in a bind. If you can avoid getting one, though, you could end up better off in the long run. There are a lot of problems that can arise from getting into a payday loan agreement. Here are some of those reasons to avoid a payday loan.
6 Reasons to Avoid a Payday Loan
1. There are hidden fees
Going with a payday loan means putting up with a lot of hidden fees. For every amount borrowed, the lender will assess a charge. This charge will be added on top of the loan capital and sky high interest rates. When you agree to a payday loan, make sure you read the fine print so you know what you’re getting into.
2. Banned or highly regulated
Payday loans are regulated in many states. This is in order to ban or limit the interest rates, fees, and billing practices of many payday loan lenders. Often times lenders will take advantage of borrowers who can’t get a loan anywhere else. They will scare them into paying more than they have to because they know they need this loan and will probably still take it.
3. Aggressive lending and collection practices
Another reason payday loans are frowned upon is their aggressive lending and collection practices. Some payday loan companies threaten people with prosecution or wage garnishment. These threats scare borrowers into paying off the balance. This collection practice is ILLEGAL and, if encountered, should be reported to the Federal Trade Commission (FTC).
4. Can end up in a cycle
It’s not uncommon to see people use another payday loan to pay off a previous payday loan. Some reputable lenders try to prevent these cycles from happening by keeping a database of their borrowers to avoid rollover.
5. Many companies require access to your bank account
They claim access is necessary so they can just pull the money out of your account to make things more convenient for you. However, if you fall behind and your balance grows, they won’t stop pulling the money out. Even if it’s become too big for you to handle. This then causes a chain reaction of overdraft fees from your bank.
6. Not the best for your financial future
Payday loans are great for when you really need some money fast. Unfortunately, the high interest rates, hidden fees, and collection practices make these loans not financially smart. In fact, they could actually make your situation worse.
If a payday loan is your best option, be careful and aware of what can come with them. Contact us if you have any questions about the reasons to avoid a payday loan. We’re happy to help.
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