Payday Loans Are Bad News! Here’s Why And How To Avoid Them Forever
There is no shortage of reasons why payday loans are bad news. Hidden fees, insane interest rates, and nefarious lenders should be enough to keep American workers far away.
Sadly, this is not the case. In fact, over 12 million Americans turn to payday loans for financial help every year. Why? In many cases, there’s just nowhere else to turn. According to The PEW Charitable Trusts, age, income, parental status, race and ethnicity, geographical location, and employment status serve as catalysts.
- 20 percent of workers with income less than $25,000
- 9 percent of Americans 25-29 years old
- 8 percent of parents
- 7 percent of non high school graduates
Americans who represent those statistics use payday loans more often. The good news is that payday loans can be avoided, regardless of income, age, parental status, education, and other “statistically” determining factors.
Before we get into the “How” to avoid payday loans, let’s get into the “Why” they are bad news, and should be avoided at all costs.
The Immediate Sketchy Business Of Payday Loans
Payday loans are short-term loans that must be paid back within a few weeks. You need money, you get a payday loan, you take care of your financial emergency, you pay back the loan. Seems simple enough right? Wrong!
There’s a reason you can get $500 quick cash in minutes. It’s set up for lenders to prey on American workers. Payday lenders will do a quick bank account check and verify your employment. You’ll give them your account information to deposit money, and then you’re required to write a check or authorize a payment to repay at a predetermined date.
So, if you need $300, you’ll get $300, but need to pay back $350 to $400. It’s the loan with interest added on.
Unfortunately, those who need $300 today, may not have $400 to pay it back when the loan amount is due. So the loan rolls over and more interest is added. In a year, that $300 could cost the borrower thousands.
Payday Loans Prey On Those Who Can’t Repay
If you take into account the Americans who are statistically more likely to use a payday loan for quick cash, you can see that there are nefarious dealings underfoot. Many Americans don’t even have $1000 in savings, and payday lenders know this.
The fact is, they don’t want borrowers to pay back the loan on time. Because they know that borrowers are in a pinch, and if they don’t have it saved at the time of darkening their doorstep, they probably won’t have it in a few short weeks either. Even if they paid back the loan on time, they’ll need to take another to cover monthly expenses.
A Financially Stressful Cycle Begins
When someone uses a payday loan to pay off something unforeseen, it generally means they don’t have access to money to pay it on their own. Hence the need for quick cash. What this does is start a financially stressful cycle, because most payday loans are followed by more loans, and more loans, until the money owed is simply too much to get out from under.
In some cases, the generous payday lender will rollover the loan for another two weeks, and then again and again, knowing all too well that the borrower is getting further in debt. If it sounds like something from the Sopranos, it’s pretty much a legal form of it.
And when it’s all over, Tony Soprano or someone with a 1980’s tracksuit won’t be knocking on the borrower’s door to collect. This is probably a good thing. But a court order to pay will be sent and then begins the expensive legal fees. The cycle is very hard to break.
The Good News — You Can Break The Payday Loan Cycle
There are a number of ways to avoid ever using a payday loan to get quick cash. For starters, you can begin working on securing a better credit rating. Credit scores are not important to payday loan lenders, but they are to banks and credit card companies.
With a decent credit score, you can get a credit card with a $500 to $1000 limit. This can be your, “break in case of emergency” cash when you need it the most. And even though the percentage is high on credit cards, you won’t be locked into a vicious payday loan cycle.
You could also begin stacking away what you can each month into a rainy day savings account. It may be challenging, but the money you have in savings can be just enough you need when it counts.
In combination with all of the above, you can enroll in earned wage access via RocketBNK. It’s an easy way to access the money you’ve already earned before payday. If you need quick cash, you can get it 24/7 using your RocketBNK FDIC bank account and debit card. Access to money should never be shady.
Ditch the payday loans and get the money you already have coming to you at zero cost. Learn more about RocketBNK today!
