The Dangers of Payday Loans

When you’re living on ramen packets and you don’t know if you’ll be able to afford your next tank of gas, a payday loan can seem like a tempting way to get the cash you need right away. All you have to do is pay it back when you get your check, right? Stop right there. Payday loans are extremely dangerous.

Preying on Students

College students are often desperate for money, and payday loan companies prey on that vulnerability. An article in The Guardian states, “adverts for payday loans weed out the people they’re not interested in, until all they’re left with are the incredibly desperate or the young and unreasonably optimistic.” College students are a special target because of their unique circumstances. Of course you’re not dumb, but your circumstances may trick you into thinking that taking out a payday loan won’t have dire consequences. In truth, though, these loans are nothing but traps.

Shocking Interest Rates

According to PayDayLoanInfo.org, the average payday loan comes with an annual percentage rate (APR) of around 400 percent. Sometimes, the APR can be close to 800 percent. Your jaw is probably already on the floor, but to drive the point home, think about interest rates for credit cards, which usually have an APR between 10 and 30 percent. Credit cards seem like a bargain compared to payday loans!

Usually, you are expected to repay a payday loan with your next paycheck, as the name of the loan implies. However, you may be given the option of simply paying a finance charge and rolling over the loan into your next pay period. The more you do this, the more money you end up paying for nothing. This can turn into a debt spiral that will cost you hundreds or thousands of extra dollars over time.

Avoid Payday Loans

The best way to avoid getting trapped in a payday loan scam is to create a budget and stick to it. Anticipate the hard times, and set aside a rainy day fund for when you can’t work as much or when you have added expenses.

But what if you simply don’t have the means to set aside money ahead of time? You might think that if the choices come down to getting a payday loan or not eating, a payday loan is the lesser of two evils. However, you may have other alternatives.

Hit Craig’s List and sell some stuff you don’t need anymore. You’ll get cash, reduce clutter, and hook someone else up with something they do need.

Ask your employer about a pay advance. Many employers are flexible, and they want to please their loyal employees, so it can’t hurt to ask for a bit of an advance on your next check. Just don’t make a habit of doing this.

Another option is to take something valuable to a pawn shop and use it as collateral for a loan. It’s a quick way to get some cash, and you’ll be able to get your valuables back when you repay the loan.

Payday loans are scary — scarier than that horror flick that gave you nightmares when you were a kid — so avoid them by being smart about your budget and taking advantage of payday loan alternatives.

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