Today, the cost of living has gone up and many people have begun to seek out short term loans to help make ends meet. There are several loans options available including a payday loan. A payday loan while appealing could prove extremely costly. A payday loan is a short period offer that generally is considered as an advance on the borrower’s paycheck. As with any loan it is important to understand the risks before taking out a payday loan.
The cost of these loans, especially the payday loans are substantially higher than the cost of other types of loans. Credit cards and various other loans have interest rates that have an Annual Percentage Rate of not more than 25%, but offers such as the payday loans and unsecured loans can have annual percentage rates can run as high as 390 % per hundred.
Despite the ease of taking out a payday loan and the low requirements needed the borrower should do so only when fully aware of the end financial cost. What appears to be a quick fix may turn into a “debt trap” causing increased financial hardship.
If the recipient of the loan does not repay their debts as soon as possible, then the amount due for the loan can increase very quickly. Missed payments can result in a poor credit rating making future loans difficult to acquire.
Just as with any loan it is important to note the terms and conditions and plan ahead so that you do not increase your debt beyond your ability to pay.