Taking up a payday loan is simple; it is like asking for normal loans but with different terms. With a payday loan, you get the money almost instantly and the interest rates are imposed immediately you receive the money. This type of loan is fast, convenient and requires minimal qualification. A payday loan may be one of your best options during a financial emergency, but has a high chance of creating a future financial crisis. Before you take up this loan, you should have a look at the following risks involved;
Taking loans to pay for other loans
Conventional loans may be harder to obtain; they take longer and require more qualifications. Payday loans are instant, easy and convenient to apply, and will require minimal qualifications. When people have impending loans from credit cards, insurance policy loans, bank loan payment and pawn brokers, they are more likely to take up loans to take care of these loans. Since a payday loan is easy to obtain, you will find yourself taking up the loan to settle other loans.
The risk of a debt cycle
When you are fond of paying your loans using other loans, you risk creating a debt cycle. This cycle will automatically get you deeper into debts. This means you will not meet most of your loan deadlines and may use most of your income to settle some of your debts. This financial crisis may be difficult to come out of.
The risk of being scammed
When you register to a payday website, there is a high chance you may be providing your information to fraudulent lenders and scammers. Online businesses are known to have the highest number of scammers. People have created websites which they use to scam unsuspecting people. They collect your information and it for subscriptions and identity theft. Some scammers pose as your payday loan lenders and call may call you to demand for payments. Fraudulent lenders have unlicensed payday websites where they impose excessive interest rates on loan borrowers. You should think twice and investigate before feeding your information to online webs.
The risks involved in taking these loans are enough to cripple your financial health. For starters, the interest rates on payday loans are too high, especially for a short-term loan. Conventional loans are long term but they have cheaper interest rates. The interest rates on payday loans are imposed as soon as you get the loan. When you don’t pay the loan on time, interest rates will increase until you pay it fully.
When you don’t pay your loan on time, you risk your credit card report. Payday loans do not reflect directly on your credit card so how is this possible? If you don’t pay your loans on time, your debt will appear on your bank statement and the lender may report this to the credit bureau depending on their terms. Either way, the unpaid loans will appear on your credit card report as bad credit. With bad credits, it will be hard for you to receive traditional loans. Insurance companies will charge you more and you may get less job opportunities if you have bad credit reports. The risks surrounding a payday loan are high, always avoid payday loan if you are not in any financial emergency. If you take the loan, take measures to avoid the repercussions.