What are the cons of a payday loan?
A payday loan is a high-cost, short-term unsecured loan that has a principal that is a portion of your next paycheck. Payday loans are often for small amounts of money, commonly $500 or less pay day loans South Carolina. Payday loans provide immediate funds, come with extremely high interest rates, and are usually based on your income.
Payday loans are usually paid back within two to four weeks, and you can get them at a brick-and-mortar payday lender or online. Lenders usually don’t conduct a full credit check or take your ability to pay the loan back into account.
Different states have different laws when it comes to payday loans; some states ban payday loans entirely, while others cap the interest rates that lenders can charge.
You might be put in a position where you feel like you have to take out a high-interest loan to cover an expensive medical bill or rent check, but you should try to avoid payday loans if at all possible.
Consider any alternatives you have to payday loans before deciding to get one, as they come with a lot of risk
With exorbitantly high interest rates, payday loans can end up costing more than you initially borrowed and can trap you in a cycle of debt. Additionally, payday lenders often target low-income, minority communities and convince them to accept confusing loan terms.
- The amount you could end up paying is extremely high. Per the Consumer Finance Protection Bureau, a typical two-week payday loan with a $15 per $100 fee equates to an APR of almost 400 percent. To put that number in context, the APRs on most personal loans cap out at 36% and credit cards’ rates can get over 30%
- You could hurt your credit. While payments made on payday loans aren’t usually reported to the three major credit bureaus (Experian, Equifax, and Transunion), if you default on your loan and your debt is sent to a debt collector, your debts in collection could damage your credit.
- You could trap yourself in a cycle of debt. Read more