Each year, millions of Americans take out payday loans to bridge a financial gap. These short-term money arrangements seem benign on the surface; the consumer borrows money and has to pay it back, with interest, by the date of their next paycheck.
Unfortunately, many consumers don’t ask enough questions, don’t read the fine print close enough, or are fooled by shady payday loan lenders. More often than not, these loans are also advertised to the most financially vulnerable in society, leading to many other problems for desperate citizens.
In particular, payday loan interest rates are one of the most dangerous aspects of these already suspicious transactions. Let’s look at other problems with payday loans and how they’re presented to the public.
Are Payday Loans Really “Easy”?
There’s a saying in life: “if it looks too good to be true, it probably is.” When things are advertised as “so easy” or “can’t miss,” that saying begins to ring in my ears.
One of the consistent advertising cues with payday loans is how easy it is to apply and quickly be approved. When consumers feel they have no other options, easy and quick begin to sound more and more tempting.
Payday loans are easy to get but not easy to pay off
One of the more appealing aspects of payday loans is how easy they are to get. Payday loans are designed to take all types of consumers, regardless of credit history or current financial standing.
The trick with payday loans is making sure they’re paid off entirely before the time expires and defaults. Unfortunately, these loans are designed with interest rates, making them challenging to satisfy initially. Once a consumer is behind, the compounding rates and fees keep them stuck in a debt loop.
The high-interest rates of payday loans
Most payday loans are for amounts less than one thousand dollars. By design, they’re relatively small amounts owed back in a short amount of time. The loans carry a fee that can be compared to the interest a consumer would pay yearly on a traditional loan.
Since the loan is only for a few weeks, and the fees are in dollar amounts, many consumers don’t consider what the annual percentage rate on the loans adds up to.
For a loan of $500 with a fee of $15 per one hundred dollars, the APR is 391%. For comparison, a credit card averages around 18% APR and a bank loan is closer to 11%. When a consumer defaults and the interest begins to compound, the original loan amount owed grows exponentially and can quickly be too much for a consumer to handle alone.
Payday loans prey on the financially vulnerable
Most consumers looking for payday loans could be in better shape monetarily. Payday loans are often the last resort for many, especially if they need better credit or a checkered financial history.
Most payday lenders realize they’re lending to individuals who may have trouble paying back the loans.
For many of them, that’s the whole point. Suppose the consumer becomes ensnared in the payday loan debt trap. In that case, payday lenders are more likely to be able to collect additional fees from rising interest rates or other penalties.
Are Payday Loans Safe?
The design of payday loans is straightforward and can be managed if the consumer pays on time and in full. But, as we’ve been discussing, many payday loan companies are looking for consumers who are as likely to default as repay.
The safety of these loans has much to do with the awareness of the individual, too. A payday loan can work if a consumer is savvy and understands the risks and how to avoid the pitfalls. Still, it’s usually a risky money move, for the most part.
How lenders might misuse data
When applying for a payday loan, some personal information is required. The lender also requires a postdated check for the total amount owed to be written and signed. This way, the lender cashes the check and gets their money when the loan comes due.
Unfortunately, the check has a bank account and routing number, and your personal information is also on file. Although eager to create a loan, many payday lenders may be less interested in committing fraud or stealing personal information. Still, the possibility of personal data being sold to others is real, and others in the world would jump at the chance to use personal info for financial gain.
Checking the authenticity of your lender
One of the more alarming developments surrounding payday loans is the illegitimate scammers trying to trick consumers out of their money. They sometimes offer bad loans or engage in monetary fraud, such as asking for money transfers in gift cards or pressuring consumers to pay debts already satisfied.
If a payday lender asks for unusual personal or financial information or requires extra steps to secure a loan, they may need a closer and more skeptical look. These scammers also realize that consumers involved in payday loans are already in a vulnerable spot, which makes them easier targets.
Consumers can check with their state regulator to see if the lender is licensed or has any history of irregularities.
Are Payday Loan Approvals Quick?
Most payday loans can be approved on the spot or fairly quickly. Again, this is by design. Most lenders want to get you signed up before you second-guess your decision.
How difficult is it to escape from a debt cycle?
Considering that most consumers stuck in a debt cycle probably don’t have the money or resources to help themselves in the first place, payday loan debt can be exceedingly hard to shed.
Many consumers don’t have the time or information to contact loan companies and negotiate a new deal. To truly get out of a debt cycle, partnering with a third-party company that can adequately arrange debt relief is often necessary.
Who Needs Payday Loan Consolidation Help?
Any consumer who is behind on payments or has an outstanding balance with a payday loan company should determine what kind of help a loan consolidation service may be able to offer. Asking for professional help is often the key to turning the corner on financial despair.
How Does Payday Loan Consolidation Help Work?
Pursuing payday loan consolidation can offer significant changes to consumers stuck in a debt cycle.
A stress-free method
First and foremost, you can regain peace of mind by addressing how to pay off an overdue loan properly. You’ll also see that the debt collection calls will begin to subside.
Then, with the help of loan consultants, you’ll be able to create a reasonable plan for eliminating this financial burden. These same loan consultants are also experienced in working with payday loan companies to resolve a customer’s outstanding debt.
Spread payments over a comfortable period
A loan consolidation service will create a payment plan that the customer can follow and satisfy. Instead of a lump sum payment or an astronomical amount, the consolidation creates a scenario in which the consumer successfully repays for a more extended period without adding more interest.
Avoid high-interest rates
By controlling the payment schedule and working with the client, companies like Real PDL Help can supply a fixed interest rate for the remainder of the repayment. Once a consumer isn’t paying an outrageous interest rate, they have a much better chance of paying off the loan.
Where Should I Get Help For Payday Loan Consolidation
If you’re tired of feeling trapped by a payday loan, it’s time to consider loan consolidation. At Real PDL Help, loan consolidations are our primary focus. We take pride in successfully helping clients emerge from their mountains of debt.
By working on behalf of our clients and negotiating with their payday lenders, we can offer a winning strategy for everyone involved. Check out our website, read some success stories and contact us today to revive your financial future.