Quick fix loans such as payday loans can often put people into a debt cycle they can’t get out of. There are many reasons why a person may choose to take out a payday loan as an alternative to a normal mainstream loan
When looking at payday loan options, you should consider the following:
- A typical Payday Loan has higher fees than getting a loan from a streamline lender (initially 20% or more of the amount borrowed plus an annualized interest rate on top)
- Payday lenders are not legally required to inform you of the annualised interest rate on the loan
- If you fall into a Payday Loan debt trap, it will become difficult for you to be eligible for a loan with any lender- in today’s age, lenders look at payday lending as hardship lending and it doesn’t look good when applying for a car loan or personal loan.
- Payday loan default fees are extraordinarily high – often up to twice the borrowed amount
Payday loans tend to have higher fees and interest rates than other types of loans; and consumers can often find themselves having to take out another loan to cover these fees.
They are also notorious for affecting your credit score. Even an enquiry into taking out a payday loan will show up on your credit file, which can affect your ability to take out other types of loans down the track such as a mortgage or finance for a car. So together with taking out too many payday loans, consumers should avoid making too many applications for them too.
It should also be noted that showing a reliance on taking out payday loans in your credit report will often interpreted by lenders as a signal that a person has bad financial management skills, even if you meet your loan repayments. Thus, banks will take your payday loan history into account when deciding whether or not to approve you for a loan.
Yes Loans Finance Broker Goran Babac says “These days, it’s very hard to stray clear of payday lending for consumers; with the world turning digital across the board, it’s always in your face through TV advertising, radio, Facebook and any other social media platforms.”
“My advice to anyone looking at borrowing smaller amounts, is to save the money or see our personal loan brokers to help assist with our minimum lending amounts so we could potentially save your credit score from a negative impact,” Mr Babac said.
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