The current COVID predicament has left countless people trapped in a crippling financial cycle of debt, particularly among low-income families, college students, and young adults. Those still eager to make a change are looking to strike the right balance between threading the needle with borrowed and earned money.
Payday loans are the face of high-risk predatory lending across the United States. Roughly 12 million Americans are using these lending options annually. And 7 in 10 take out a loan pretty often. Mostly to pay rent and utility bills. Here is a quick look at what this source of income can bring to the table.
Payday Loans – Figuring Out the Basics
This short-term borrowing offers people an ample opportunity to get cash according to their income from a lender. When there is a huge variety of things to pay, like household repairs, bills, rent, or anything else, a payday loan can help keep up the pace. It provides:
- Practical and quick access
- Fewer requirements and much easier acceptance criteria to other lending categories
- Better odds of getting approved even with bad credit
- Lending to people with a poor credit history
Now, the primary downside is the high-interest rate and the fact that the borrower’s ability to repay isn’t taken into account. When the fees do add up, they can become a real roadblock. The typical interest rate is 391% and could reach over 600%.
The more you postpone the repayment, the higher the interest rates are going to get, skyrocketing with time. And data shows that 80% of such loans don’t get repaid in 2 weeks. So, before you jump the wagon, you need to think about your ability to cover these expenses and avoid building interest.
How Do Borrowers Acquire These Loans?
This quick solution may be a budget-busting expense, but it’s often seen as a practical lending choice in many cases. Many options are at your disposal when it comes to obtaining payday loans. Based on CBS News data, the majority (73%) obtained exclusively storefront payday loans.
Fewer (16%) acquired loans exclusively online, while a fraction (4%) relied on both methods. Some (7%) used other methods. Going to a storefront lender provides more transparency, while online lending is all about convenience.
How Much Would a $500 Payday Loan Cost?
For $500, it’s best to repay it with the next paycheck. The median interest rate is 38.5% in some states. Certain states, however, don’t have caps, which is why it would be in your best interest to repay it as soon as you get a paycheck. It’s best to check the available borrowing options. And consult with a financial planner for those who believe it’s tricky to navigate these turbulent financial times.
Getting emergency money can be a life-saver. But, when deciding to borrow, it’s crucial to be able to repay it back; otherwise the fees keep piling up. So, try not to create your own debt trap, rather find ways to mitigate the issue. With the right budgeting strategies, you can work out the payday loans interest rates. As well as reach your financial objectives.