Ever had an emergency a couple of weeks before your regular paycheck? Most people have, and over half of them did not have any savings in their bank accounts or emergency cash stacks at home. Sometimes, even a flat tire or simple flu can become a disaster if you do not have the money to buy a new tire or some pills.
If you’re like most people, you probably feel really bad about such situations and tend to blame yourself. You don’t earn enough, you’re not financially educated enough, you buy too much useless junk, and so on and so forth — this list can literally go on for pages. Sure, no one can deny that high salary, basic financial awareness, and reasonable shopping habits are all incredibly useful. But, most Americans face financial difficulties not because they lack the above benefits.
The sad truth is, over half of the states’ population does not even have $500 of savings. That’s why ‘I need a loan right now’ situation is so common. The reasons for this are plenty — from low incomes to high cost of living, but we’re not here to discuss present socio-economic conditions. We’re here to find a solution to any financial problems people may have.
The first and most important thing you’ll need to remember is that not loans are safe. It’s great if you can borrow some quick cash from a friend or a relative. But, not everyone has this luxury, so some people turn to money lenders instead. You can see them literally everywhere, offering instant payday loans. Headlines like ‘quick cash’ ‘instant loan,’ ‘fast credit approval’ lure many people in. No surprise that people who need the cash quickly do not even pause to think how dangerous these loans are.
Below, we will tell you everything you need to know about such credits and why they are designed as debt traps. Most importantly, we will tell you about possible alternatives that will not put you in endless debt. So, consider this article as your Finance 101 course. It all starts with understanding who wants to rip you off, so stay tuned.
Payday loans: what they are & how they are dangerous
Even the name of this credit already implies that you should pay back the moment you get your salary. In a way, payday loans work pretty much like borrowing money from a neighbor and returning the whole sum when you get paid at work.
The difference is that you’re not borrowing money from a friendly neighbor who helps you of the goodness of his heart. You’re getting this money from a lender, and this person is doing business, not charity. This means — interest. So, you’ll be expected to pay back the whole sum you borrowed, along with interest and any other associated fees.
It would all sound pretty reasonable if not for one important detail — interest rates on instant payday loans are incredibly high. Often, they reach 400% annual percentage rates. Sure, at this point, the number sounds high, but still pretty vague. So, let’s dig into some practical math.
Simple math behind payday loans
Most instant lenders charge $15 interest for every hundred bucks you borrow. It does not seem much if you only need $100. In such a case, you wait a couple of weeks for your paycheck, then repay $115, and you’re done.
In practice, few people go to lenders just to get a hundred bucks. Most borrow at least $500, sometimes even more. So, borrowing $500 implies returning $575 — in just two weeks. And, you do it in a single payment, and you always have to do it quickly — usually, two weeks is the longest period. That doesn’t seem too fair, right?
Of course, if you’re waiting for a huge paycheck, $75 of fees might seem a trifle. On the other hand, if your regular paychecks would be so impressive, you would unlikely end up without a single cent in your pocket, searching for loan offices near me. Sure, every rule has its exceptions, but usually, people go to lenders because their incomes are low, to begin with. And, any person with low income will tell you that $75 is a lot. It can pay your bills, buy your food and medicine, have your home repairs done, etc.
So, if you borrow $500 and, in just weeks, repay $575, you’re immediately back to where you started — without money to pay the bills or buy gas. As simple as that. And the $75 fee vanishes into thin air instead of going to good use. Quite literally.
Online loans: are they any different?
Ok, so we have this one issue cleared— you do not go for fancy headlines and do not borrow money from shady strangers. What do you do then? Is turning to the all-powerful Internet a solution? NO! Online loans are even more dangerous than regular ones. And here’s why.
The thing is, as more and more states catch up on shady lending practices, plenty of unfair crediting practices are being banned. Even in states that still allow them, media and community alike are campaigning against such credits. So, money sharks are abandoning their shops and are moving to the vast spaces of the Internet, offering people to get a loan online.
When it comes to math, there is no real difference between getting payday loans online or onsite. Sure, an online solution seems easier because your money is literally a few clicks away. However, online lenders require more proof than your ID. Often, they ask for extra financial info, like your credit score or bank statement.
This info is, indeed, required by plenty of creditors. However, legal entities that are not trying to rip you off ask for it so they could determine how safe it is to lend you money. Also, they analyze your finances so that they could come up with a suitable interest rate and repayment plan for you. None of these is the case with online payday loans, so no quick money lender should have access to your private financial information.
How do online advances work?
So, how do online loans work then? It all starts with a simple thought “I need money now” and a simple google search for “loan places near me” or something like that. Then, you will either see an ad or a link that takes you to a certain website. Usually, it will be quite simple and carefully designed.
Then, you will be asked to submit your private info and financial statements for the online payday loan to be approved. The latter happens in minutes, but the logic is pretty much the same. You get a short-term credit with a very high interest rate, and you’re supposed to repay all debt in a single payment. And, you’re supposed to do it quickly — within two weeks or less.
As a possible option, you may be redirected to an online loan aggregator instead of a certain business. On a larger scale, that doesn’t change anything because such an aggregator will collect the same info as any other business. Later, it will quite literally sell this info to one or another company, and they will give you the loan. Obviously, this all reflects on your interest rates.
So, as you can plainly see, all cash loans online are nothing but financial traps. They do not help people out — they usually put them in even more debt. Because of their short terms and minor cash advances, the actual amount of interest may not seem high. But, 15% on a borrowed sum transfers to 400% of annual interest rates, which is a sheer robbery.
In other words, online loan companies that offer short repayment terms and high interest rates are not your buddies. Ideally, you should stay away from such people and their offers. And, if you see someone who offers you a loan rollover, you’d better run. Quite literally.
Additional risks of payday loans: Rollover facts
Most untrustworthy lenders will offer a perk that’s not really a perk if you pause to think of it. We are talking about a rollover that’s supposed to look like a solution. In reality, however, it only worsens your problems instead of alleviating them.
So, if a debtor cannot repay is debt, the lender will offer a rollover. This sounds like a delay in payment, but it’s not a good kind of a delay. When your two weeks expire, and you do not have the cash to repay full debt, creditors will offer you to repay only your interests. You are not paying the loan itself, and you get another two weeks for that. But, you also get a second round of fees. The amount is the same, but since you’re paying the fees twice, we’re no longer talking about $15 on each hundred. With a rollover, we’re talking about $30 on each hundred.
By now, you clearly see how the system works, and which traps it sets. Most people who do not have high incomes and have to borrow money in the first place cannot repay their full debts within two weeks or less.
So, if we go back to our $500 loan example, getting a rollover means that you pay $75 in two weeks. And, you get another two weeks to repay your full, $575 amount. So, you’re losing not $75, but $150 into thin air. And that on top of having financial trouble already! Not at all difficult to figure out what happens if you rollover twice — in less than two months, you’ll owe $225 just to have borrowed $500.
Even though this financial trap seems obvious, approximately 80% of people fall victim to debt rollovers. Within a month, the majority of lenders re-borrow money, thus increasing their debts — according to the recent stats. Besides, people who make use of quick credits, end up in debt for almost an entire year because this vicious circle cannot break easily.
All of the above, once again, shows that fast payday loans are debt traps, and any reasonable person should avoid them by all means possible. Sadly, people who constantly lack the money will not even see the trap for what it truly is because they are already trapped in poor financial situations.
Who falls victim to payday traps?
The above info seems clear and comprehensive enough, so it’s surprising that so many people still fall victim to this snare. On the other hand, low-income households are plenty, and any such household can get trapped in even more debt. Payday lenders specifically go for already vulnerable social groups: low-income minorities, retired people, etc.
Here are a couple more stats that will make you rethink your finances, spending, and crediting habits:
- 12+ million people in the states get quick cash loans every year
- 52% of the above group are women
- Southern, Midwest states and city dwellers get credits regularly
- 13% of people going through a divorce get credits at one point or another
- Minorities and older people are some of the most vulnerable age groups who are in debt most of the year
More than that, money lenders have access to the same stats, and they actively make use of this knowledge — of course, not for good. That’s exactly why you can see so many pawn shops and loan stores in neighborhoods where the minorities live.
What to do when you’re already trapped
We wrote such a detailed guide to help you avoid getting a payday loan in the first place. But, if you’re already stuck in debt, all of this info seems useless old news. Well, it isn’t. Even if you’re already stuck in debt, there are a couple of things you can do to improve your financial situation.
Talk to a verified credit counselor to see if there is a way to restructure your debt.
Ask lenders for an extension that does not raise or prolong your interest. Few of them will do it, and fewer of them will even offer such a solution. But, asking would not hurt, and some companies may agree to that.
Transfer a short-term credit into a long-term one. This way, you will not be expected to pay high interest. Also, you’ll have a chance to repay debts in several successive payments instead of a single one.
Most importantly, you should understand that a payday advance is not the only option there is. Even when you need money now, quite literally, this very second.
Safer crediting options to make use of
Even when you need cash, there are plenty of legal ways to get it. Banks and certified lenders alike can give people cash advances. A personal loan, for example, is a way safer alternative than a payday one. Sure, some people cannot get credit from a bank because they have a bad credit score or none at all. Even in such a case, most institutions will give an installment loan. A credit like this can be repaid over time, in several successive payments, and — what’s even more important — without sky-rocketing interest rates.
Besides, there are a couple of steps that make any crediting process safer. You should:
- Take some time searching for the best payday loans lenders. We’ve dedicated an entire article explaining why you should not get any payday advances. On the other hand, money lenders hardly ever deal with one loan type exclusively. So, you can always research a bit and find companies with a trustworthy reputation and reliable customer reviews. Chances are, they will offer you better crediting conditions.
- Read through an entire agreement. Even if there are pages of it, and even if small fonts are involved. As you read, ask questions — no matter how strange or ridiculous they may seem. Your goal is not to look smart, but to act smart. That includes understanding everything that’s written and implied in this agreement.
- Compare different crediting options. Most reputable companies offer more or less the same crediting options and conditions. Still, it doesn’t mean that one cannot find a more favorable credit plan. It just takes a bit of googling and talking. And, you should always compare different offers whenever you have a chance.
Your takeaway on credit types and options
By now, you should already understand that you deserve better than a predatory credit. Every single person deserves a chance to borrow money safely. More importantly, people should be able to repay their debts without getting into more financial trouble.
That’s exactly why SpeedyLoan is here — to offer people favorable crediting options that could help them instead of putting them in even more debt. Speedy cash loans offer longer terms, lower interest rates, and a more reasonable repayment plan than any payday loan store can think of suggesting. Our mission is to help people leave their financial trouble behind. That is exactly why speedy cash advisors welcome all people, regardless of their credit history, income, or present debts (if any). Our counselor will take time considering your financial situation and come up with a solution tailored to your needs.