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Why Should I Avoid Payday Loans?

Why Should I Avoid Payday Loans?

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Almost everybody knows payday loans can be acquired in no time, and that’s how it’s being advertised. If you need immediate financial assistance, a payday loan can come to mind. However, just because it’s simple and easy to get doesn’t mean there are no downsides to it. Depending on payday loans can lead to a long-term financial problem. Let’s look at reasons why it’s advised that you avoid payday loans.

Very high fees

If there’s anything you should know about payday loans, it’s their very high fees that are touching the sky. Banks and credit unions can have high APRs too, but in the case of payday loans, the APR can run into three digits. Now, because of the high cost of acquiring this loan, you may see yourself spending your next paycheck on the interest alone, this can trap you in a debt cycle.

Debt Cycle

The way payday loans are structured, if you’re not very careful, you will be trapped in a debt cycle for a long time. You’re required to pay back the loan on your next paycheck. Meanwhile, some people find it difficult to pay the loan in full due to the high fees and interest rates. They are then forced to take out another loan to cover the initial loan. This pattern of borrowing can easily get out of hand and it keeps going on and on like that till the borrower becomes stressed and overwhelmed with debt.

Short Repayment Terms

Short Repayment Terms

Other traditional loans have longer repayment terms compared to payday loans. They have a short repayment term of about two weeks. Many borrowers who already have other bills and financial obligations to fulfill may find this payment period unachievable. Which can then put a further strain on their finances.

Additional Fees

Some lenders will charge borrowers late fees, and rollover fees, they even charge fees for the initial borrowing. When all these charges are put together, they can mount up, and you will find that the borrowing cost is too expensive. If you already have credit card debts, then adding this payday loan fee and interest rates to it can become overwhelming.

Impact on Credit Score

Payday lenders don’t necessarily run credit checks or use your credit score to determine if they will lend you money or not. However, if you fail to fulfill your obligation within a timeframe, the delinquency may be reported to credit bureaus if the debt is sold to a collection agency. This action can end up affecting your credit score and make it more difficult for you to get favorable traditional loans in the future.

Predatory Lending Practices

Payday lenders are calculating. Their target audience is the weakest members of the society. Since there’s no credit check, most people who will opt for a payday loan already have a bad credit history. These people don’t have access to favorable traditional financial services due to their poor credit history. These groups of people are looking for quick ways to get cash and they fall in the trap of payday lenders. If a borrower is not careful, their financial situation will keep getting worse.

Mental Stress

Mental Stress

When you’re disturbed by the thought of your finances, it can affect your mental health. Repaying such an expensive loan can be stressful especially if you’re juggling other high-interest debts with it. When emergencies arise, it can throw you off balance because you’re short on cash and still in debt. All these put together can give you anxiety, affect your relationship, your motivation level, and your career. If it becomes persistent, it may lead to headaches, sleepless nights, and more serious health issues.

Alternative Solutions Exist

By now, you already know payday loans are not the best option. There are better alternatives to acquiring credit or managing your debt without having to take out a payday loan. You can work out a lesser repayment plan with your creditors through a consumer proposal, you can get assistance from credit counselling, you can get a small loan from a bank or credit union, or you can get an interest-free loan from a family or friend. These options don’t carry the same risk as payday loans. If you don’t know which way to go, then you should consider speaking to a debt expert at EmpireOne Credit.

Conclusion

You don’t have to keep borrowing to pay off a previous loan, it’s not sustainable and will get you deeper into debt. How about you speak with one of our debt experts at EmpireOne Credit? Seeking help isn’t a sign of weakness or defeat but a proactive measure to get the help that is already made available to you. No one will judge you for this. When you speak with one of our debt experts, your debt can be reduced by up to 80%, and interest will stop immediately. We have debt experts who are empathetic and would prioritise your feelings and goals to achieving debt freedom. Call us at (416) 900-2324 to schedule a free consultation with us. Being debt-free feels good!

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