Payday loans are designed to trap you in a debt cycle. When an emergency happens and you have poor credit and you don't have savings, it may seem like you have no other choice. But choosing a payday loan negatively affects your credit, any savings you might have had, and may even cause you to take you to court. Is it bad to get a quick payday loan? Yes.
That's because they'll slap you in the face with huge fees. Fast payday loans come at a huge cost: they have significant interest rates. Yes, applying for a personal loan means getting more into debt, but it will cost much less than a payday loan. While payday loans offer quick access to cash, these short-term loans carry high financial charges that make them expensive.
Consider alternatives, such as an alternative payday loan, credit card, or personal loan, that may be more affordable. If all else fails, the lender is likely to refer your case to a collection agency, which will first try to bombard you with phone calls. Later, they can even take you to court, which can end up in the public records portion of your credit report if a judge rules in favor of the lender. If any of these things happen, your credit score can be severely damaged, making it even more difficult to get credit.
Even if your credit wasn't good before the payday loan default, a new collection action is almost certain to make it worse. You can get a payday loan in person at a local loan agency, but many payday lenders now operate online. In addition, since payday loans do not take into account the applicant's full financial picture, including their ability to keep up with other financial obligations and living expenses while paying off the payday loan, this type of loan often leaves borrowers in a vicious cycle of debt. However, other states may require borrowers to visit a physical location to apply for a loan for this type of payday advance.
But before you bury yourself with instant payday loans, consider these payday loan alternatives if you need some extra cash. I want to recommend two good alternatives to try to avoid payday loans, as payday loans trap you in a cycle that is almost impossible to get out of. A payday lender will expect you to return the money you borrow quickly, usually within two to four weeks or before your next payday. Payday lenders rely on regular customers, often low-income minorities, who charge exorbitant compound interest on cash advances.
Payday loans generally cost more than personal loans, credit cards, and even expensive credit card cash advances. A study of payday loans conducted by Pew Charitable Trusts found that the vast majority of payday loan users, 69 percent, first turned to this type of loan to cover recurring expenses such as utility bills, rent, mortgage, student loan payments or payment bills credit cards. While a payday loan can solve an urgent need for money in an emergency situation, it's important to consider your options before going to a payday lender.