It isn’t unusual for people to run out of cash before the next payday. In fact, a lot of people you know may have told you that this has happened to them before, or it may even be happening still. That is the value of the so-called “payday loan”. A loan that is just that – money to borrow until the next payday, to be repaid in one chunk. They are supposed to be short term loans involving modest amounts because the borrower finds himself temporarily out of cash. Payment is usually guaranteed through a post-dated check issued to the lender for the amount borrowed. Aside from this, a fee is charged upon release of the loan amount.
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Now this all sounds like a hassle-free way to get emergency cash when money is running low before the next payday. However, borrowers must think twice before getting into the payday loan cycle with fees that keep accumulating after failing to repay the loan when it came due. Borrowers that “roll it over” fall into an even tighter spot in just paying off the interest every time the loan falls due, without paying back the original amount borrowed to begin with.
Doing this over and over means borrowing the same amount again and again while in the process; ridiculous amounts of interest are paid. The very high interest rates make payday loans extremely expensive with annual percentage rates that may run up to several hundred per cent, sometimes even a thousand. Due these very high fees, a financially strapped individual should stop looking at this mode of borrowing as a life saver. On the contrary, payday loans tend to make things worse for a borrower who cannot make the payment after the first due date. From thereon, interest rates go up, skyrocketing at times.
As a temporary solution to a short term problem, payday loans may get a person through a rough patch, but this solution does not apply when one is perennially out of cash. In such case, there is a need to evaluate monthly expenses in order to cut down on some expenditure; while also finding ways to earn the extra cash without taking out a payday loan.