We have all heard the commercials and seen the ads. Payday loan companies promise financial paradise at $20 a pop – but what many people who fall prey to these ads don’t realize is that these claims couldn’t be farther from the truth. Payday loans, especially payday loan interest, can turn a small loan into a big financial problem.
When people take out payday loans, they usually do so only intending to borrow the money for a short period of time, paying the loan off with their next paycheque. One of the biggest problems is, if the money wasn’t there this week, chances are probably quite high that the money won’t be there next week either. Additionally, since they are so easy to get – no credit checks are involved – the payday loans companies are, in essence, being irresponsible with their lending, not properly vetting those individuals seeking funds.
When it comes to borrowing costs, herein lies another problem. They don’t initially charge any interest, instead issuing a borrowing fee which can sometimes be as high as $200 for a $1000 loan for a two week period. For some, this may seem like a reasonable deal-but this is a 20% charge for a very short period of time.
Think about it this way: if you earn $1500 for 2 weeks and you borrow $1000, in 2 weeks you have to repay $1200 which only leaves you $300 to live and pay bills for the next 2 weeks. For most people, this necessitates a roll over, meaning more fees. A $1000 payday loan that costs $200 bi-weekly and is carried for 6 months or 26 weeks ends up costing $5,200 in fees – or as we like to say payday loan interest!
You have to be realistic when it comes to payday loans, and even though they promise you the world because there is no interest, they don’t ever deliver because of their exorbitant fees.
Many may the question what options exist. A small personal loan is always a better choice – one that can use existing equity or assets as collateral. And, if this loan reports to your credit report you are actually working to build a positive credit history when you keep up with payments.
Don’t let a lack of payday loan interest fool you – these lenders take advantage of hard working Canadians and take big payouts in the end.
For more about the dangers of payday loans, or to find out more about alternative options, please contact Prudent Financial today at 1-888-852-7647.