The Dangers of Payday Loans
Garrett Driscoll
July 09, 2007
Although payday loans do work for most people looking for a short term solution to financial problems, if you misuse payday loans you are asking for trouble. Payday loans should only be used sporadically if you are really in need of money and have exhausted all other options of getting money elsewhere. Payday loans should not be used for regular advances against your paycheck.
This is because you will end up paying back well more than you borrowed when you first applied for a payday loan. If you take out $200.00 with interest charges of $60.00, you will need to pay back $260.00. If you do so when it is first due, then all you have really lost is $60.00, but the money came when you needed it so it is worth it. The problem comes though when you don’t have the money to repay it the first week it is due. Then you decide just to pay the interest charges and roll over the loan amount to your second pay period. So, now you have paid $60.00 and still owe $260.00 when it comes due again. If you do that for 8 weeks for example, you are then paying $480.00 plus the initial $200! If you go on rolling it over even longer you can essentially pay triple, even quadruple in interest plus the initial money that you borrowed.
This is what can happen if you borrow more than you need, and more than what you can repay. The best way to avoid this is to obviously try to borrow the money from somewhere else first, but if that doesn’t work, then simply borrow what you can afford to pay back the first time it is due. Try to avoid rolling over the payday loan, because you will spend much more trying to pay it back and if you are unable to, eventually your credit can be affect in a bad way.
This is because you will end up paying back well more than you borrowed when you first applied for a payday loan. If you take out $200.00 with interest charges of $60.00, you will need to pay back $260.00. If you do so when it is first due, then all you have really lost is $60.00, but the money came when you needed it so it is worth it. The problem comes though when you don’t have the money to repay it the first week it is due. Then you decide just to pay the interest charges and roll over the loan amount to your second pay period. So, now you have paid $60.00 and still owe $260.00 when it comes due again. If you do that for 8 weeks for example, you are then paying $480.00 plus the initial $200! If you go on rolling it over even longer you can essentially pay triple, even quadruple in interest plus the initial money that you borrowed.
This is what can happen if you borrow more than you need, and more than what you can repay. The best way to avoid this is to obviously try to borrow the money from somewhere else first, but if that doesn’t work, then simply borrow what you can afford to pay back the first time it is due. Try to avoid rolling over the payday loan, because you will spend much more trying to pay it back and if you are unable to, eventually your credit can be affect in a bad way.