With so many people desperate to get money to pay their bills and other expenses, instant cash loans are becoming more and more common. However, these usually offer no long term solution, and they can quickly turn into a debt cycle many people are unable to get out of. Learn about the pitfalls of payday loans and why you should only use them as a last resort.
What are instant cash loans?
Payday loans are loans that are offered in the short term and they can be useful to people trying to get out of a tough period in their lives. However, these types of loans usually cause more harm than they help, and many people end up repaying a lot more than they borrow.
Instant cash loans are generally used by people who are temporarily out of money, and they typically amount to several hundred dollars. These are short term loans and they must be repaid usually within two weeks or so. In order to get a payday loan, you must write a post-dated check with the amount borrowed plus the fee. The check will stay with the lender who will eventually try to cash it in if you don’t show up to pay off the debt. Another option is to have the debt rolled over so as to extend it. However, this is not desirable, as if you don’t repay it in a short period of time you will only accumulate even more debt and end up paying many times the initial sum of money borrowed.
How much do they cost?
Before you consider taking out any instant cash loans, know that these types of loans are extremely expensive. For example, for a hundred dollars that you borrow you would have to pay a 20 dollar fee plus the amount borrowed. While 20 percent might not seem so bad, consider that this is usually the interest for a two week period. Most people who turn to payday loans are unable to pay the debt and they roll it over indefinitely. Consider that you are re-borrowing five times in a row. This would have you repaying twice the sum you initially borrowed within less than three months. If you extend that to a whole year, then the annual percentage rate would be in the hundreds, although rates above 1000 percent are not that uncommon.
There are many problems related to resorting to instant cash loans. First of all, you might end up paying a lot more than you borrowed. This is because, if you are in financial difficulty, they won’t solve the cause of the problem, but just offer you a short term solution. Over time, you will end up a lot worse than before. If you refuse to pay the fees and don’t extend the payday loan, then you will end up with bounced checks and overdraft fees which will not only ruin your credit score, but also result in high fees issued by that bank which has instant access to your checking account.
Finding an alternative
So if you have an emergency and need money fast, then a payday loan may be a short term solution to your problems, as long as you are sure you can repay it in time. If you are constantly fighting off bills and other expenses you cannot cover with your income, then a payday loan is to be avoided at all costs as it would only make the problem worse. Instead of taking a payday loan, you could apply for a second job, build an emergency cash fund, get a signature loan from a bank or even try peer to peer lending services. Avoid instant cash loans and only turn to them in the most extreme situations.