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  • Payday Loans can help you out of a situation where you have an unexpected bill to pay before your next paycheck and don’t have the money to cover it.
  • They can be incredibly useful to help you navigate through unexpected medical bills or vehicle repairs, but they do come with some risks that you should be aware of.
  • In this guide, we’ve broken down these dangers into three main categories: Credit, Cost, and Consequences.

 

Credit

 

It is important to know that if you fail to meet your payday loan repayment schedule, your credit rating can be negatively impacted. A low credit score can mean that it is more difficult to be accepted for a loan in the future, so it is definitely important to know.

A payday loan should definitely not be used to repay other loans as this will create a cycle of debt: you will incur high fees that will be detrimental to your current financial situation. Even if you fail to repay your loan on time, it will still continue to gather interest that will likely result in a great deal of unmanageable debt. Failure to repay this debt would also negatively impact your credit rating, making it more difficult to borrow in the future.

A marked credit rating not only makes it more difficult to be accepted for a loan in the future, but it could mean that you can no longer get credit products from traditional credit resources.

Payday loans should never be used to pay off existing debts. They should only ever be used to pay off urgent and unexpected debts such as surprise medical bills, or vehicle repairs.

 

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Cost

 

The cost of payday loans can also be off putting to potential borrowers.

Payday loans can be expensive, which is why they are only ever recommended for unexpected and emergency payments, such as surprise medical bills and vehicle repairs. The high cost of payday loans can trap borrowers in a cycle of debt if they fail to meet their scheduled repayments.

As such, it is important to only apply for a payday loan if you meet the typical requirements for a payday loan including: being over 18 years of age, being a US resident, having a stable income, and having a bank account that the loan can be paid into upon approval from the lender. Payday loans should only be used as a quick fix for people with a stable income, who know that they will be able to make the scheduled repayments.

Payday loans offer fast cash and sometimes accept poor credit, so charge a much higher interest rate than other types of loans.

 

Consequences

 

Aside from having a negative impact on your credit rating, making it more difficult to be accepted for loans in the future, there are other severe consequences for defaulting on your payday loan repayments.

If you fail to make repayments, your lender can attempt to reclaim their money via several methods. They could enforce wage garnishment, wherein a portion of your wage is sent straight to your lender; implement lawsuits and take you to court; and enforce debt collection. It is extremely rare, but jail time is also a possibility for defaulting on scheduled payday loan repayments.

Payday loans undoubtedly have benefits for those with unexpected and urgent bills to pay before the next paycheck comes in, but there are also a lot of drawbacks that you need to be aware of before applying for and accepting the terms of a payday loan.

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