Are Payday Loans a Scam
Other terms used to refer to payday loans are cash advances, payday advances, or paycheck advances. All these are short-term loans. Normally, the loans range from $100 to $500 or higher at times. The customer may expect a loan fee of $15 to $30 per $100 borrowed. If you translate this to an annual percentage rate (APR), it is equivalent to 300 to 800 percent. APR examples in this article are for illustrative purposes only.
The high interest rates associated with payday loans have earned payday loans bad publicity in the press. Most people consider the high interest rates a questionable and unethical practice. The reason the interest rates are much higher than traditional loans is that these are short-term loans. If lenders were to charge traditional interest rates, they would not make a profit.
A second reason that many think of payday loans as a scam is that the borrower can easily end up in a hole without much hope of getting out. This is the reason that borrowers are encouraged to ensure that they will have the funds available to pay back a loan. It is essential for customers to have a financial plan when taking out a payday loan. Under such circumstances, a payday loan can turn out to be a blessing and result in peace of mind.
It is apparent why people often think of payday loans as scams designed to rob consumers of their hard-earned money. However, one would need to consider the fact that consumers who apply for payday loans have already considered all their options. They either do not qualify for a traditional loan due to their debt to income ratio, bad credit, or a number of other reasons. In such a scenario, the only alternative left is to take out a payday loan. A person would actually save more money by taking out a payday loan than paying high credit card fees, bounced checks or facing eviction because he cannot pay the rent on time.
If after considering all the facts you determine that you need a payday loan, request it from a reputable website. Make sure to read all the terms and conditions, then proceed to fill out the application. When used responsibly and correctly, payday loans can work out to your advantage.