Emergencies often happen when you least expect it, and if you’re not financially prepared when disaster strikes, the best thing you can do for yourself – and your finances – is to avoid payday loans, no matter how hard up for cash you are.
These days, there are lots of online payday loan lenders and direct payday lenders that allow you to get same day payday loans instantly. The concept of payday loans is fairly straightforward: you borrow the amount of cash you need plus an additional fee, and you pay back that amount when your next pay cheque arrives. If you can pay back the loan by your next payday and you don’t mind shelling out the extra fee, a payday loan won’t cause you much harm, provided that you don’t make it a habit of turning to these quick loans each time you’re short on cash.
Although payday loans are a convenient way to get fast cash – these are loans with no credit check, and you don’t have to go through an application process – it’s also a quick way to get into financial difficulty, if you aren’t careful. If you’re considering – or have considered – getting payday loans in Canada, take a moment to consider these reasons to avoid instant payday loans.
Quick Payday Loans Come With High same day loans Utah Interest Rates
One of the main reasons not to get a payday loan has to do with their high interest rates, which are often higher than the interest rates on personal loans and credit cards.
Most payday lenders assess a fee for every $100 borrowed, which can range from $15 – $30. For example, if someone took out a $100 payday loan, they would have to pay back $115 by their next paycheque. A $15 fee to borrow $100 may appear like 15% interest, but when you do the math, it’s actually equivalent to a 390% annual interest rate, which is more than 10 times the typical rate on a high-interest credit card.
Although payday loans are meant to be a short-term fix if you need cash now, the reality of it is that with the quick turnaround time (borrowers have until payday to repay the loan) and the high loan interest, a lot of borrowers aren’t able to repay the full amount. Rather than defaulting on their loan, many borrowers opt to renew the loan, and in some cases the loan gets renewed so many times that borrowers can end up paying almost as much as the loan itself in just fees alone.
Five Reasons to Avoid Instant Payday Loans
These easy loans come with a quick turnaround time and quite often the borrower isn’t able to pay back the loan once payday rolls around. This leaves the borrower with two options: the borrower can default on the loan and run the risk of getting sent to collections, or the borrower can pay an additional fee to roll over the loan for another two weeks. And, as we’ll see, these fees are yet another reason to avoid payday loans.
When the loan is renewed, most payday companies assess a fee on top of the outstanding balance. So using our previous example, if you take out a $100 same day loan – which turns out to be a $115 loan with the initial fee – and you choose to renew the loan because you can’t pay off the payday loan by your next payday, you can expect to owe about $130, depending on the cost of the renewal fee.
What starts off as a quick fix and a relatively manageable level of debt can quickly escalate due to the accumulating fees. The more the loan amount increases, the more difficult it becomes to pay off the loan in full, which leaves the borrower with no choice but to continue renewing the loan and accumulating more debt.