No matter where you are financially, the blaring claims of payday advance services are enticing. “CASH NOW,” “Bad Credit OK!” and “Instant Approval” are tempting promises that can sound great. After all, if you’re in a tight spot, and the help is immediate, what could be the problem? If you’re desperate, why wouldn’t you “call now”? So glad you asked! It’s wise to look at all sides of an option before diving in, and the payday loan services have already covered the benefits: immediate cash in your pocket, no credit checks, and you’re free to pay them back once your next paycheck arrives.
Here’s the other side of the story --- 5 potential drawbacks to payday loan services that the bright signs might not include. There are definite pitfalls you should be aware of when dealing with a payday loan:
1.) You give up your bank account information.
With most payday loans, you write a check that the lender cashes on your next payday. In the meantime, you get the value of the check, minus a hefty fee. As the payday nears, however, you may not have the funds to repay the loan, since rarely does a financial crisis disappear in 2 weeks. That’s when many borrowers request a “rollover” or extension, from their lender, for another couple of weeks. Again, a hefty fee accompanies this agreement, and at any time, the lender may refuse your request and debit your bank account. This is a risky proposition for someone living on a tight budget. Why risk it?
2.) You risk overdraft fees.
If at any time the lender does stop offering you extensions or renewals on your debt, they can sever ties by debiting your account for whatever you owe them. This can come as a shock, especially if the lender was just pushing you to borrow more yesterday. As if that weren’t enough, you may not have been ready for that debit, which can result in overdraft fees and other bounced items from your bank. This is a domino effect that you want to avoid as it can be tremendously costly in the end.
3.) You can forfeit control.
While comforting at first, payday loan services can make you feel like a victim. Subtle wording like “when unexpected expenses arise” give the impression you don’t have control over surprises. And while that’s partly true, there’s another side to the story: You can always plan for upsets, because life is full of surprises, and not all of them are pleasant. Learning to decipher between a comforting voice and an enabling one can, in part, determine your financial future. A call with a non-profit credit counselor will demonstrate the difference between an empowering, friendly voice versus one that’s trying to sell you something.
4.) You may get “trapped”.
We are creatures of habit, and once you rely on a payday advance to “bridge the gap,” it’ll be tempting to do it again. Since payday loans are by far the most expensive form of subprime lending, you’ll want to avoid them altogether, and stick to the alternatives.
5.) You may be supporting the opposing team.
Another pitfall is the perpetuation of a product that the FDIC has deemed inherently “abusive” and “unfair.” So even if you’re savvy enough to stay free from the cyclical trap of repeated borrowing, stepping foot into a payday advance joint is an encouragement to an industry that has been deemed harmful.
The FDIC says the main concern for consumers to consider is that the price of these short-term loans is high, especially for repeat users. In fact, it’s unclear whether the industry would survive without the people “trapped” by the cycle of paying high fees for quick, short-term cash. Before considering a payday advance, chew on the potential pitfalls and how they might affect you and your family.
If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.
Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY