Previous post examined the convenience of payday loans, let’s take a fair look at the disadvantages. Throughout the U.S., governments on every level are looking at payday loan companies with increasing concern. Many people think that they take advantage of low-income people in financial trouble. Some go as far as to say they “prey” on them. Their argument to that is that they’re filling a need and they’re not doing anything illegal. So the controversy continues – let’s examine why.
Remember back when you thought you’d solved your problem and you could get on with your life? Well, what if your next paycheck, after your budgeted expenses, wasn’t enough to pay back the loan?
If you came up short again, you needn’t worry – payday loans are renewable, or extendable. This process is called “rollover” and, if you do it too many times, it could end up costing you a lot of money. Let’s look at an example: Say you borrowed $100 for 14 days (until your next payday). Your account will be drafted by the lender for the $120 (includes your $20 fee). The APR (annual percentage rate) of that loan is 521%! If you can’t pay back the $120 on the due date, you can rollover the loan for another two weeks. If you rollover the loan three times, the finances charge would reach $60 for a $100 loan. That’s pretty high interest, don’t you think?
These are things you need to consider when you’re deciding if a payday loan is the right choice in your particular situation. Yes, the cost of the loan is high, but it provides you with the money you need, when you need it, thus avoiding a lot of stress and trouble. It’s very true in consumerism today that convenience costs money. But is it worth that much? That’s a question you’ll have to answer for yourself.
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