What is a payday loan – and why are they so controversial?

Have you heard of payday loans? Maybe you already have if any of the following apply to you. Do you often find yourself barely making money last until the end of the month? Does your paycheck just about stretch to those last few days? Do you have a bad credit score and a desperate need for some extra cash? If your answer to any of the above was “yes”, then you may have already heard of payday loans.

What is a payday loan?

A payday loan is a form of borrowing money with the intention of it being super short term. Due to the fact that it is a short term loan the interest rates are often very inflated. The intention of the payday loan is to be paid off with a portion of the next paycheck, and so sometimes they are also referred to as cash advances.

How do payday loans work?

Paydays loans are designed to be paid off by the applicants next paycheck and so they are often found with very high interest rates. When a person agrees to take out a payday loan they agree to have the amount being taken out, plus interest, to be taken out of their account on their next payday. The outcome of the applicants application isn’t even based on their credit score and normally came from small credit merchants instead of banks. And now it is becoming more commonplace to find online payday loan lenders, where the user can have the money in their accounts within mere minutes, making it super easy and quick. So logically, there must be a catch. More details!

Why are they so controversial?

The thing about payday loans is that they normally lead to a vicious cycle. To be able to understand why payday loans are so dangerous, we first need to look at their main target audience. They are perfect for people with no savings and a bad credit history, living paycheck to paycheck, who are in desperate need of some extra cash and fast. If they are barely getting by, when an emergency comes up and they need money then they have no other option but to take out a payday loan. When they do this they will also be agreeing to payback the loan automatically on their next payday, plus interest. In this situation we have to ask ourselves how likely it is that someone who didn’t have money to spend one month, will have money to pay off the loan the next month. Thus this creates a cycle in which the person would need to keep taking out payday loans to keep paying them, always increasing their debt.

 

To sum up, if you ever find yourself in a situation in which you need money and fast. It is highly recommended that you consider other options before a payday loan. If you find yourself in this situation then try and find other alternatives to payday loans. Check out this site: https://ezinearticles.com/?Things-You-Need-to-Know-About-PAYDAY-LOANS&id=9698934