How Popular Are Payday Loans And How To Use Them Effectively?
If you have imminent financial liabilities, you may be tempted to take out a payday loan. Nevertheless, you must be careful when considering this debt instrument as your instant source of cash. One reason is because it is often used as a scam that can leave people like you in a terrible financial situation. This article discusses the prevalence of payday loans and how you can use them efficiently.
Is the use of payday loans widespread?
In a research study conducted in 2012, the Pew Charitable Trusts found that 12 million Americans rely on payday loans each year. This statistic shows that payday loans are among the most popular debt instruments in the country.
What are they used for?
As stated in the introduction, payday loans provide immediate cash to people who are dealing with unexpected situations. This is at least the case for those who are considering this borrowing solution for the first time. For example, if you contract a serious sickness for which you're not insured, you'll basically be financing your treatment out of pocket. Given the high medical costs in the U.S., you're likely to encounter financial difficulties especially if your treatment stretches over time.
Since the access to banks' funds to solve these types of problems is restricted, you're better off trying your luck with a payday loan agency. According to the Pew Charitable Trusts, there are two main groups of payday loan beneficiaries:
- Those that are financing their recurring expenses
- Those that found themselves dealing with an emergency
The first group is by far the largest since it represents approximately 8.3 million Americans, while the second one features less than 2 million people.
Why should you be careful when taking out these loans?
There are two major issues that have been identified with payday loans:
- High probability of scams
- Unending borrowing cycle
Payday loans are accessible via online lenders and brick-and-mortar agencies. Scams have mostly been reported with online lenders who often conduct business in states in which they aren't licensed. The magnitude of these operations is so big that it concerns about 90% of online payday loan lenders, according to Reuters. The schemes were uncovered when borrowers realized that the charges made on their banking account were considerably higher than the ones negotiated.
The second issue associated with payday loans goes along with scams. Indeed, if you've been scammed, then your financial situation will most likely be more impaired than it was before you took out the loan. In such a scenario, borrowing becomes the only alternative available to reimburse the previous debts. This goes on like a cycle from which you'll hardly be able to exit. Besides, payday loans that are secured online are by far the most expensive ones since they are assessed predatory fees and interest rates.
Using payday loans effectively
- Choose a licensed lender
- Have a full disclosure of the fees
- Work with your bank to ensure that the lender won't put you in any more financial trouble
- Manage your money wisely to be able to meet all of your liabilities
While payday loans can help you deal with a situation in the short-term, they may also affect your life negatively in the long run. It's important that you always take the time to compare offers from different payday lenders before deciding which one to choose. Your decision should be made based on the total cost of borrowing. Ultimately, what you want is to belong to the 2 million Americans who use payday loans in emergency situations only and rather than to the 8.3 million people who use them frequently. Navigate to this web-site to learn more.