Payday loan actually
there to help you solve your financial problem, but it
also can lead you to a lot of other problems if you don’t
manage your budget carefully. You should know however
that because these are small, short-term loans, the Annual
Percentage Rate (APR) is quite high. So, often payday
loans become a trap. It is not used on a one-time basis
as suggested but extended to next payday due to the extreme
high cost to borrow and the very short repayment term.
Payday loans are made to look so attractive so you are
tempted to keep borrowing rather than saving what you
have. Cash-strapped borrowers are rarely able to repay
the entire loan when payday arrives, because they need
the new paycheck for current living expenses. So you are
also tempted to rollover or refinance one payday loan
with another.
The other thing which will lead you into trouble is when
you can’t pay back your loan and default on the payday
loan. If you default it can cause many problems for you,
like extra NSF fees from both your bank when the payments
bounce. The payday loan company may also send your account
to a third party collections agency, which could be very
detrimental to your long term credit options. In addition,
your default will be reported to consumer credit agencies
that can make it impossible for you to obtain another
payday loan or even open a new checking account in the
future. Some payday loan company will also take defaulting
clients to court and sue them.
