A payday loan is a general term that refers to high-cost, short-term loans. These types of loans typically fall under the $500-range. You usually owe back the amount of that loan on your next payday.
Most payday loans share similar features: They are typically small amounts, in the form of cash or an electronic check, and requires a single payment. These characteristics can vary. Many individuals are attracted to the fast cash and accessibility. However, there is a dark side.
What‘s the catch?
Oftentimes, things are too good to be true. Payday loans are no different. It’s true that quick loans can help individuals in a bind. Regardless, this might not be the right option for those facing financial difficulties. How do you fall into the trap?
Young individuals are most prone to the disadvantages of payday loans. They sometimes have a do-it-yourself mentality, and possibly haven’t come to terms with their debts. Taking out a payday loan is essentially fixing the problem yourself. Until you miss the deadline.
Starting the cycle
Like most cash advances, payday loans come with extremely high-interest rates. While you may think your next paycheck can cover the payment, something might come up where you are unable to dish back the cash. This can land someone in further debt, risking the vicious cycle of taking out loans to pay for loans, and onward.
Additionally, some payday loan companies have access to your bank account. Therefore, they could potentially pull money from your account. At this point, you have lost even more control of your finances. Not to mention, your rent money went out the door.
There are a few ways you can avoid the payday trap, such as practicing frugality and analyzing your monthly spending. But for individuals with a history of financial hardships, following these tips might not prove adequate results.