The Reasons Why Payday Loans Are Terrible Financing Choice
If you are striving towards paying your monthly bills, you’ve probably considered getting a payday loan. Payday loans are short-term loans that usually range from $100 to $1,500. It is taken out by someone to compensate for payment certain bills or needs.
It might be easy to obtain, yet it should only be your last resort when you need some cash. In fact, taking out payday loans can be risky if you are not fully aware of how it works. This guide will help you realize that as much as possible you need to say no to payday loans.
Three Reasons Why Payday Loans Are Terrible
Below are the main three reasons why payday loans are a choice that you shouldn’t consider. It is somehow the last option to take when you are in need of cash.
1. Becoming Dependent On Payday Loans
In the long run, you might not perceive that you are already becoming dependent on payday loans. Well, you should know that these loans are too expensive For instance, when borrowing $100, you might be charged for $21 granted that you have paid back on time. Your charges will actually depend on the amount that you borrowed. Granted that you’re struggling each month towards paying your bills, this can result in using your next paycheck to compensate for the loan payment.
Moreover, as you struggle each month and consider payday loans as a lifeline, you’ll end up depending on it month after month. This is the reason why this should only be taken as a last resort at times of emergencies.
2. Incredibly High-Interest Rates
In terms of borrowing loans, you don’t just pay back the amount that you originally borrowed; you need to pay certain interest on top of the amount you owe. This cost progresses steadily if you did not pay back the amount you owe on the time specified. Normally, your interest rate is likely to increase every after 2 weeks.
For instance, if you did not pay the loan even with its 21% interest charge after 2weeks, you will incur an additional 21% in terms of interest. So, each time you fail to settle your loan, the charges keep on increasing every 2 weeks, until it becomes impossible for you to pay it off instantaneously. As this is easy to obtain, it is somehow a trap, which pushes you to become insolvent.
3. Impact On Your Credit Rating
Provided payday loans are expensive, it can be hard to pay it off, especially f you’re facing all sorts of debt each month. Since it incurs high-interest charges, getting into a mound of debt because of these loans is way too easy. It can even lead to a detrimental impact on your credit rating.
Moreover, if you incur so much debt due to these loans, you might have a hard time qualifying for other loans, which may be far more useful and affordable. Besides, it might even be hard for you in buying your first house through mortgage or owning a car through leasing or financing, or even applying for your RRSP loans.
Considering Other Options
There are actually several options that you can consider rather than taking payday loans. Perhaps a line of credit will serve you better rather than becoming dependent on your payday loans. Besides, you can seek methods to earn more money either through freelancing or getting a second job. You must also set aside a financial cushion at times of emergencies. Also, starting to build your emergency fund is one way to avoid taking payday loans. The point is, whatever struggle you may have, you must first foresee the end result of your decision to be aware of whether you’re making a smart financial move.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.