With the number of payday lenders exceeding the number of McDonald’s in the U.S., it is becoming more obvious that people in need of fast money is on the rise. According to a review by the Federal Reserve Bank of St. Louis, there are more than 20,000 lenders across the country, which is an estimated 5,000 more than the branches of McDonald’s in existence.
But is a payday loan the short-term fund solution that you are looking for?
Staggering annual percentage rate (APR)
Sure, you get access to fast money when approved for a payday loan, but what you don’t know is that you end up paying an APR of more than 300%. This can hurt your pocket really bad, whichever way you look at it.
You’re already living from paycheck to paycheck, if you have to pay off your loans in between; you are setting yourself up for deep financial troubles. Studies show that people who rely heavily on payday loans would end up poorer. If you are into repeated use, recovering from all your debts will be real struggle.
Easy to renew
No, you’re not reading it wrong. It may seem hard to imagine for “easy” to relate to anything negative, but it becomes bad when associated with payday loans. Because you can easily rollover your loan, you end up borrowing money to pay for what you previously owed, which adds to more debt. This explains why APRs end up really high, and leads to an unending shortage of cash. For this reason, payday loan rollover is prohibited in Alberta, Canada.
Payday loans are only good for consumers who only need fast money to defer a particular expense or liability. If this is not the case with you, it is best that you seek alternatives; including cash advance from your credit card, borrow money from friends or family or seek consumer credit counseling.