Payday Loans: What You Need to Know

Instant loans are becoming more popular in America with women between the age of 24 and 44 years being victims of these credit terms.

The payday loans are simply the short term loans that you receive without security and any strict documentation. They come along with substantial interest rates. In most cases, the loans are used to run the recurrent day to day needs like buying groceries or foods.

According to research by Pew Charitable Trust, about 12 million Americans use instant loans at payday depot per year, with the total borrowing standing at $7 billion. It is more of a low-income people business than the high-income earners. Such loans are usually spent and not invested. 

Does it help?

When you get fixed at a financial need, the quickest way to go is to take the short term loans. Within five minutes you will have the loan debited into your account. Taking such loans for emergency is wiser than for having recurrent needs. They do help.

Here are critical facts you should understand before taking such loans:

Extremely high-interest rates

If you compare the interest rates for bank-issued loans and payday loans, you will be surprised at how much you are spending. Just because you get the loan within five minutes does not make it a better solution. The annual interest rate for bank loans ranges from 5% to 7%, which is not the case for instant loans. The instant loans can have an interest rate of between 391% and 500%. The high percentage is never visible since the loans are meant to last for two weeks or less. 

One instant loan calls for another

Statistics show that instant loans are usually taken by those with low income to meet their recurrent needs. This means that before you pay your loan, you already need more of it to meet your needs. You end up taking another loan to clear the initial and remain with something to spend but still on loan terms since you can access multiple lenders. Illustrated, you will be taking a loan from lender B to clear your loan with lender A. It will take you five to twelve months to live a loan-free life. 

It might call for harassment

When your loan is due, and you are not in a position to clear it, you will start receiving calls and messages with lots of threats to pay. Worst comes when you deliberately stop receiving the calls. Your lender will contact your relatives. In America, your lender might walk into your home or workplace to have the loan paid. It is never smooth to pay such loans.

Is there a remedy?

Life in debt is not a simple thing. You can work on your financial life to be free. For instance, instead of taking the payday loans, you should move to your bank and take a loan for investment. Out of your profit, you can be paying the bank loan peacefully. 

Alternatively, develop a saving plan. You can meet your recurrent needs from your savings. However, do not clear the savings for just a single demand.