Middle-class families in the USA are aware of the strapped cash. In this tight economic situations, shaky job position and financial insecurity, families are trying their best to make both the ends meet. As debt keeps on piling and credit cards max out, the consumers are left with few options if they think to borrow money. In the present scenario, the time may push the people in the same depression frames that were in 1933, remember that unfortunate situation that accounted for unemployment conditions of around 15 million Americans. That was a time when half of the country’s bank systems did not work; everything was a mess, and people were seeking financial stabilization.
Knocking the current situation!
Contextually, in the wake of the pandemic, COVID-19 has undoubtedly pulled a large part of the economy of the world into its spiky grips. There is a situation wherein people are asked to resign or more ruthlessly; they are fired! It has shaken the world economy of every country in the world. Whether you are a business owner or an employee, it has spared none. On the other hand, the global lockdown has extended for a more aggravated toil for the small scale business that cannot operate with a manual workforce. In this condition, experts believe an economic package would be the only tool for entailing the country’s economy back on track! Till then, what can be the financial aspects of the people?
Indeed, that may be surmounted by a varied number of parameters, Contrastingly, not decided by a sole reason. Scroll down to know the current financial aspect of the different sections of the society and the option for payday loans. Will the loans really be useful for tuning up the people’s economic status in a healthy manner? Get in now to answer your curiosity to the bottom!
What is a payday loan?
Understanding the concept of payday loans is reasonably straightforward. People prefer to take payday loans in case of utmost emergency when you have no other options left. Also, if you have a low credit score, you cannot apply for a loan in most of the banks. So, Do you think the payday loans can be a substitute for the standard interest rate loans?
If your answer to the above question weighs more for an affirmation, you may not be more wrong! There are various restrictions on payday loans. Apart from those restrictions, you have to get the funding of the total loan amount within the next day. Moreover, the interest rate for payday loans is abnormally high! Opting for a payday loan can have severe implications for the financial frontiers, what can be they, get in to know!
Digging in step-by-step
Mortgages are still under the water, and auto loans are not suitable; consumers even do not want to opt for another loan from their bank. Therefore, where do the middle-class families of the USA stand?
At first glance, payday loans seem like an attractive option. A small loan is approved within a few minutes, and the money is transferred via direct deposit to checking the account within 24 hours. But, consumers do face some financial drawbacks when they take out a payday loan.
Payday Loans are Expensive
Payday loans are quite costly. The most expensive credit card has an interest rate of 28% or 36%. But the payday loan interest is even higher than that. A $100 payday loan costs you $15 for ten days; then, the annual percentage rate is almost 400%. Payday loans are a better option for those where the residents are not eligible for mainstream loans.
Debts Can Double
With payday loans, there are chances that the debts can grow faster. You might end paying up 3, 4, or even 10 times larger than the amount you originally borrowed. The debt created by payday loans doubles in just one year. Just with a single mistake, you can pile up huge debts.
Stuck in Repeat Cycle
There are chances to get stuck in the repeat cycle. The reputed short-term lending companies prevent this by maintaining a database of customers to prevent the rollovers. You have both good and bad loan operators. According to Center for Responsible Lending research, says that 76% of payday loans are borrowed to pay off old payday loans. Even the non-profit consumers also reported that the payday loans are paid within a two-week period that indicated that the borrower is going to stay under the debt for more than six months.
Not a Financially Wise Option
Payday loans are not the smart options or a wise financial decision for the long run. The interest rates are simply astronomical, with hidden fees, legislation that either banned or limited the payday loan across United States. In a tight economic situation, taking out a payday loan is actually making your condition more stringent.
Can’t Back Out
Payday loans are quite easy to get as compared to other loans, which takes odd hours . Just with a little thinking and considering other solution, you can easily crack the loan. It does not carry any right of recession. It means, if you want to change the mind after signing the paper, you have no option to cut back. That’s bad, isn’t it!
Almost all the payday loans come with a hefty hidden fee. Well, that may not be something that a rational customer would go for, but yet, in an emergency, rationality is not everything that decides! In most cases, suppose you borrowed a $100, the lender can cap the assess up to $300, depending on the various factors. Those can be your credit score, the area you live in, and others. These hidden charges are something that places itself on top of the interest rates and loan capitals, thus making it a highly unreliable source of getting cash for the customers.
Other than these factors to avoid payday loans, how about understanding the afterward-scenario? Undoubtedly, it would sketch a clear picture of payday loans for your financial proceedings.
What if you cannot repay the payday loan?
Apart from triggering your bank account, the process of collection of the payday loan amount can be ruthlessly harsh! Below are some scenarios that you may expect if you fail to repay the loan amount.
Harsh collection calls and hefty bank withdrawals
In the current context, payday lenders would not prefer to wait after your repay time is due. The immediate action would be opting for bank withdrawals. Well, that can only be possible if you have given access to your bank account in the agreement papers! If through the banks, they are unable to clear the total debt, what could be next?
Well, the payday loan lenders would break the charges into smaller ones and attempt for further extraction of money, whatever is left in your bank account. That seems like a typical robbing situation yet being triggered by your actions! In the process, there may be multiple bank fees incurred for all failed attempts.
No JAIL! But threats are common!
Interestingly, failing to clear your payday loan is not a criminal offense. In fact, there is no question of sending the borrower to jail at any circumstances. But, yet! Threats can be common in such a situation. For the worst case, some lenders may use bad check laws for filing criminal complaints against the borrowers!
In this tight financial situation, it is not easy to make money. Payday loans are no doubt easy to obtain, but they are going to cost you in the big run. Next time if you take out a payday loan, stop considering the financial options over the long run. So, decide with the wisest experience of all your financial terms!