Payday loans are defined as small loans that are short-term and high-cost. There are very few advantages to taking out one of these kind of loans; regardless, they are popular among working people because it is one of the few ways to generate quick cash in an emergency. The sad fact is that many already-struggling people fall into a cycle of debt that has the power to haunt them for years. Payday loans are supposed to reduce financial stress upon the borrower, yet they only end up taking more money than they lend– and at a rapid pace.
Why Do People Go For Payday Loans?
Many people are tempted to take out a small loan in order to rectify a problem that they are facing. Sometimes these loans are used to get a cash advance that lets the borrower buy something they need. Life is constantly throwing curve balls at working class people, which means that they need some sort of crisis fund in case things go wrong. A payday loan has such a high interest rate that it’s difficult to repay it on time, especially when someone is going through financial trouble. Vulnerable people don’t flock to payday loan companies because they want to, but because they feel that it’s the only recourse they have.
How Companies Entice With More Loans
If a borrower can’t pay back their original loan, then a payday loan company will often suggest the following course of action: take out another payday loan. The idea is that this will put off debt for another few weeks until money can be raised to catch up, but this rarely happens. Instead, the borrower is now even further in debt with little hope of paying it off. Luckily, the Consumer Financial Protection Bureau has heeded the danger that a payday loan can bring to innocent people. That’s why there are plenty of regulations that payday loan companies have to follow in order to stay above the law. Despite this form of protection, people still fall prey to payday loan companies that are able to take advantage of desperate borrowers.
What Are Better Choices Than a Payday Loan?
There are a few other routes that someone could take if they needed to get a few hundred dollars quickly. Personal loans exist for this reason; they are similar to a payday loan but have less vicious interest rates. Using a credit card would even be safer in some cases than taking out a payday loan. Either of these options only works for those that have the credit to be approved, however. A large percentage of Americans do not have the credit score required to get anything other than a payday loan. Once someone falls into the hole of bad credit, it’s hard to do anything to climb back out. For this reason, there should be more measures taken to support people with bad credit so that they aren’t reduced to supporting predatory loan companies that offer unfair interest rates.