Payday loans are financial quicksand: many borrowers are unable to repay the loan in the typical two-week repayment period. Payday loans are designed to trap you in a debt cycle. When an emergency happens and you have poor credit and you don't have savings, it may seem like you have no other choice. But choosing a payday loan negatively affects your credit, any savings you might have had, and may even cause you to take you to court.
Payday lenders essentially provide an advance on your future payment, but their abusive interest rates mean they're best avoided. This means you don't have to give the lender any collateral or borrow an item of value like you do in a pawn shop. Similar to medical debts, payday loans generally only report your debt to credit bureaus if they are sent for collections. While payday loan advocates say they grant access to loans to people with little or no credit, critics say these “short-term loans” target minority populations unfairly and trap people in long cycles That demonstrates the huge potential market of the payday loans and why are they so stubbornly popular.
Every time you extend (carry over) a loan, a payday lender charges additional fees, increasing your out-of-pocket costs for borrowing the money. While they are not secured, payday lenders often have access to your bank account as a condition of the loan, which is a different type of risk. This is a guide to choosing between personal loans and cash advances when you're trying to make ends meet, and some other alternatives to consider. We'll explore some responsible alternatives to payday loans at the end of this article, but first let's discuss how to qualify for payday loans.
Payday lenders generally don't assess your debt-to-income ratio or take into account your other debts before granting you a loan. But the quickest way isn't always the best, and you could end up paying off that single “payday loan” in the next few years. Payday loans are considered a predatory type of loan because of the high costs that can quickly increase. However, PAL II loans do not have this requirement and they also come with a higher borrowing limit and a longer repayment time.
Now, instead of taking out a payday loan or putting the necessary expenses on a credit card, you can use an app to request a small short-term advance. Because these loans cost a lot and can be difficult to repay, it's almost always best to avoid them. If you are unable to repay the loan promptly, the charges can add up, leading to a debt trap that is difficult to get out of. A personal loan might make sense, depending on the reason you got it; if you have good credit, you can usually get a competitive rate.