For many people in financial difficulty, payday loans can be a saving grace. But what are the hidden costs? RadCred investigates the true cost of convenience when it comes to payday loans.
What is a Payday Loan?
Payday loans are usually small, short-term loans that you can take out if you’re struggling with an unexpected expense or waiting for your next paycheck. They have become popular due to their convenience and easy accessibility. The downside is that they often come with incredibly high interest rates and other associated fees which can make them a costly solution to cashflow problems.
How Much Can You Borrow With a Payday Loan?
The amount you can borrow will depend on your credit score and income level, but most lenders will offer amounts between $100-$1,000 depending on your individual situation. It’s important to note that this type of loan should only be taken out as a last resort as the costs involved could quickly spiral out of control if left unchecked.
Interest rates and fees associated with payday loans
It’s no surprise that payday loans come with very high interest rates and fees – after all, these types of loans are aimed at people who need money urgently and don’t have access to more traditional forms of finance such as credit cards or personal loans. In some cases, interest rates can be as high as 400%, meaning you could end up paying back more than double the amount you borrowed if you leave the loan unpaid for too long.
What other costs can I expect?
In addition to the high interest rate, there are other fees associated with taking out a payday loan, such as origination fees (a fee charged by the lender when they process your application) and late payment fees (fees charged if you fail to make payments on time). These additional costs can add up quickly, so it pays to read all the terms and conditions carefully before signing a contract.
How can I avoid getting into debt?
It’s important to remember that although payday loans may seem convenient in times of financial hardship, they can be extremely expensive if not managed correctly. Before deciding whether this type of loan is right for you, it’s important to consider all your options, including seeking advice from a financial adviser or debt counsellor who can help you manage your finances in the future.
Is a payday loan right for me?
Payday loans should only ever be used as a last resort, when all other options have been exhausted, due to the high costs involved – so it’s important to do some research to understand exactly what you’re getting into before signing any agreement. If possible, try to speak to family members, friends or even charities who may be able to help without any additional financial burden.