It has been years since the global financial crisis had its peak. The global financial crisis has gravely affected people’s lives as it caused enormous economic devastation, closure of enterprises, and loss of employment. In other words, people were strapped of everything they have got, both property and money.
Recently, all economies are in the process of regaining their resources and financial status. As for commoners, we find ways on how to augment income. However, despite the hard work, some people just can’t sufficiently finance their families’ needs. As such, the resort to loan sets in. There are many different types of loan being offered by lenders, specially banking institutions. The most popular of these loans is the so called payday loan.
A payday loan is basically a transaction wherein individuals are granted certain sum of money to be paid in the next payday. Obtaining a payday loan is the easiest way to get instant money. However, without you knowing, applying for a payday loan can only bring about graver financial turmoil. Here are the reasons why payday loan should be avoided as much as possible.
1. Payday Loan is not a Smart Option
At the outset, a payday loan seems beneficial and the best alternative to have an additional cash. But in the long run, you will find out that obtaining a payday loan is not a smart option. Indeed,you may have money on hand for a short time, but payday loan will rip off more amounts from you due to undisclosed fees and charges and very high interests to be paid in case of default.
2. Unconscionable Rates of Interest Imposed
Payday loan is synonymous to easy cash. But applying for a payday loan can bring great risk to your financial standing. This is because of the very high interest rates being imposed by lenders. The granting and terms of payday loan is not strictly regulated by government. As such, lenders can take advantage in exercising their discretion as to how much interest will be imposed to the borrowers. Some lenders can impose an interest rate of 200% to 1000% for a one-month period loan.
3. Undisclosed Charges
If you have obtained payday loan, do not be surprised if you are going to pay back a higher amount. This is because lenders do impose fees which borrowers are not made aware of. Too often, lenders impose charges on the loan capital, not to mention the extremely high interest rate in case of default.
4. Hostile Collection Methods
Because lenders of payday loan are not strictly interfered with by the government, they are free to adopt aggressive measures to effect collection. In some states, borrowers in payday loans are harassed and threatened of a court suit or garnishment in case of non-payment.
5. Lack of State Regulation
It is only recently that governments in various states begin to closely observe the grant of payday loans. But back then, payday loans are granted and abused by lenders without the government doing nothing. In the end, consumers are put at risk and are suffers financial chaos. Also, governments fail to orient consumers about payday loan and how it operates. As such, many consumers are still enticed to obtain payday loans without knowing exactly what danger they are getting into.
John Lewis is the financial lead at instantpersonalloans, where they help people with funding for their business and personal purpose.