You might have heard that having some debt can be good. That’s true, but remember to be meticulous in your research when applying for a loan and reading the contract carefully. One way to lose all your money, house, and/or car is to apply and get a payday loan.
What Are Payday Loans:
Payday loans are short-term loans of a small amount, usually somewhere around $500 or less. Repayment is usually made on the day the borrower receives their wages or salary next. That day is usually known as a payday.
Why Borrowing Payday Loans Are Bad:
Perhaps when you start renting a house, your finances are tight due to a variety of reasons including medical bills, frivolous spending, and/or car repairs. Of course, these reasons are not limited to the examples listed. For whatever reason, you may find yourself short on money.
This is where payday loans come in. You can borrow a payday loan to pay off your month’s rent. Keep in that payday loans loan very small amounts. The bad thing about payday loans is while they can be a lifesaver for short-term problems, they can create long-term ones.
Usually, when you apply for a payday loan, you need to use something as collateral, like your car title or house. Payday loans come with high risk because they often have outrageous interest rates. According to CNBC, states with some legislation limiting these high-interest rates to states without any legislation capping the rates on payday loans can go as high as 138% to 664%. Those are very high-interest rates for small-amount loans. Many people who end up borrowing payday loans can lose their house and/or car because they simply cannot pay the loan back.
Alternatives to Payday Loans:
However, there are also better alternatives to taking out a payday loan. For example, you should consider asking a close family member or friend first. This can result in strained relationships with them, especially if you don’t pay them back. You can also check for local charities that offer help for financially strained individuals. Another option is creating another income stream, like starting a side hustle. There are many creative ways to earn more money or borrow more safely.
Written by Allie Chang