The Hard Truth About Payday Loans

Sadly, many people have been experiencing the financial crunch for a long time, even before the global meltdown. Still, it is increasingly becoming more difficult for them to put a roof over their heads and food on the table. They may have jobs, albeit, minimum wage paying jobs with part-time hours, but a "steady" paycheck, nevertheless. And sometimes, this is where their problems start. They see the ads for quick and easy payday loans. Companies even advertise that loans can be made in ten short minutes. Who would not be interested in these services? They sound too good to be true, but potential customers see the lineup of other users at the payday loans stores, so they think that this might be the way out of their dilemmas. The hard truth about payday loans is that there is rarely an instance when using payday loan services is a good idea.

Payday loans are called cash advances by some. The term is not entirely correct, but the idea is you borrow money against your next paycheck. You are required to make the full loan payment when your paycheck clears and basically payday loans stores ensure payment by taking a post-dated check or pre-authorized electronic debit to cover their loan amounts plus fees. Where people get into trouble is that they are misled by the fees, which are generally very low, but do not always include the interest rates. This is where the horror begins. Typically the interest rates range anywhere from between 261% and 300% per annum (APR). Really and truly, who can afford those rates?

Another issue with payday loans is that you literally sign your life away. Privacy is non-existent and when you take a loan, even though you have secured it with your next paycheck, you agree to the payday loan store doing whatever is necessary to collect on that loan. In other words, they can harass you at work, call your employer, and basically, make your life a nightmare. Once this happens, you might wish you had just dealt with the situation you originally had, because this new one will not be pleasant. Jumping from the pot to the fire fits perfectly here.

In addition, many believe that because they are borrowing money and paying it back in a short amount of time, they will build they credit rating or keep it at the status quo. This is far from the truth. In fact, these types of loans damage existing credit scores and do nothing to rebuild credit. While it is true that that you may have repaid the loan in the proper time frame, the fact that you had to resort to such measures is a negative. It poses doubt in the minds of future traditional lenders.

Lastly, although customers can pay off the loan on the next paycheck, they often have the option of "rolling over" the loan. Many are tempted to take their money to use for other things, as bills are mounting and grocery shopping day is near. As a result, they gladly accept the offer to roll over their loan to another payment date. In this case, interest rates have been calculated as high as 900% APR. At that point, customers are generally in serious trouble.

Admittedly, we see the television and internet ads, too. They depict happy people fixing their financial problems with one quick and easy solution. But nowhere do they explain the fates of previous customers. The hard truth about payday loans is, for obvious reasons, left undisclosed, encouraging many users to enter into these contracts quite naively and quite wrongly.