The unexpected car repair. The phone bill for texting a little (or a lot) more than you thought you did. The rent that came due before you were ready. We’ve all experienced a financial moment or two we weren’t prepared for and had to think about our options.
One option you might wonder about is a payday loan. The benefits seem clear: you can get the money you need fast, without a credit check. All you need is a job and a bank account.
Unfortunately, the drawbacks are substantial, even if you do pay off a payday loan in full immediately. Interest and fees are much more expensive than those on other types of loans or on many credit cards, and while payday lenders are subject to regulations, they may not be subject to the same regulations as banks or may work with banks in other states to get around regulations, putting borrowers at risk. Online payday lenders can be especially difficult to track down if you need to work with them after establishing your loan.
And while you don’t need good credit to get a payday loan, an unpaid payday loan and the resulting spiral of finance charges can swiftly and substantially affect your credit score.
Plus, since payday loans are established by the borrower giving the lender his or her checking account numbers for electronic withdrawal or a pre-written check dated for the date the loan is due, if you don’t have the funds in your bank account on that date, you’ll then have to deal with your bank’s overdraft procedures in addition to dealing with the payday lender.
You might address one immediate need when you get the loan, but in all of these scenarios, the one who stands to benefit from expensive fees, short deadlines, and late charges is the payday lender, not you!
We all have unexpected financial emergencies from time to time. But if expensive, risky loans that can lead to even more financial problems are not for you, you’ll want to look for other ways to meet your financial needs.