“Payday” or “Cash Advance” loans are a quick means of getting cash in an emergency. On the surface, these loans seem convenient – but in reality, they can be extremely dangerous for one’s finances.
What’s the problem, exactly?
Payday loans are short-term, high interest, no credit check loans, usually for $500 or less – due by your next payday. It’s relatively easy to get one of these loans online or through various stores like Advance America, Payomatic, and Allied Cash Advance.
This accessibility hides the fact that these loans can be extremely dangerous.
Payday loans often create a “cycle” of debt. Many payday borrowers can’t pay off their loan in time, so they push the borrowed funds into a new loan – creating a never-ending cycle.
Rollovers – where the lender allows you to pay the initial fee to extend the original due date – tacks on other fees, raising your payment even more.
For example, a payday loan of $400 could cost $60 in fees, meaning you’d owe $460 on the next pay day. Can’t make the payment and extend it again? Now you’d owe the original $400 and another $60 fee for $520 total. It adds up FAST.
These loans also cannot be seen as a solution for large financial issues. It is important to exhaust all of your options before considering one of these predatory loans.