Many people view payday loans as lifesaver to most financially vulnerable people. With time they have proved to fix the users to a cocoon which is hard to come from. When you look at things from a different point of view, credits may do more harm than good to a large population.
Payday debts have high-interest rates, which is why newspapers term the investment as “Loan sharking.” The laws and policies created to limit such inhuman practices have not managed to reduce the lenders in the market since the number keeps increasing every day. The growing number of lenders in the industry is due to the high profits of investment.
The number of borrowers in the United States of America keeps increasing too. In America, the number of money borrowers is more than 12 million a year. Most of the borrowers are individuals who earn around $20,000 annually. From statistics, most borrowers cannot meet their necessary expenses without struggling.
The cost of a week’s loan is around five dollars to approximately $20 for every $70 borrowed. The cheapest loans have an annual interest rate of 390%. For people who cannot pay the credit on time, new charges emerge on top of the debt and the interest, making them more expensive. People end up paying the mortgage only to borrow again to avoid facing significant financial problems. As time goes on, an individual finds himself in a debt trap that is hard to escape. What started as a short-term loan adds up to a substantial long-term loan.
The Debt Trap
Lenders market their business as an easy way to get money and pay it back after payment, but in the real sense, the loans are not just that easy to pay. Most borrowers face difficulty in fully paying the debt. The consumers tend to spend the credits only to borrow again so that they can meet their expenses. The lending of money soon after paying the debt creates a cycle that results in the accumulation of the loan. By the time the consumer realizes this, things are worse and hard to escape. The consumers find themselves in a debt trap that is hard to avoid.
Payday is an Expense
Payday loans interest vary depending on the State since different states have different regulations. According to the center of responsible lending, the loans have an average APR of 650%. Other countries claim that the APR of the loans is 300%. The loans tend to accumulate the interest as long as the borrower keeps postponing the loan payments. From the look of things, the loans are worse than most people realize.
These short-term loans are dangerous to an individual’s financial health. People need to realize that the loans are not worth it to start working to escape the debt trap earlier enough. There exist other safe and healthy alternatives for getting financial help when broke. People need to consider utilizing these available options to escape from the debt trap to achieve a healthy economic life.