Payday loans are one of the most common loans that are being offered in the market today. Unfortunately, people who borrow payday loans mismanage the debt and often fall into the trap of spiraling debt that keeps them from getting back up. Instead of looking form more income, what happens is that they go into more debt to pay existing debt. This rolling debt becomes one big liability that borrowers fail to manage.
Understanding about payday loan can help you avoid getting into the trap and allow you to maximize the use of a payday loan.
- A borrower of a payday loan often ends up rolling off existing debt for a new one. Most payday borrowers, according to statistics, roll over their credit to the next period and often makes a payday loan up to 8 times in year. This creates more fees to be paid and higher cost on borrowing the money.
- Around 60% of payday loan borrowers end up paying more in fees than the total amount loaned. This is because the borrower keeps on rolling over the debt where interest applied monthly includes the previous months fees and principal amount. Remember that payday loans are intended to be paid on a short term, rolling it over and treating it as a long term loan can grow the fees to unreasonable amounts.
- Many payday loan borrowers end up paying the entire debt after 3 to 4 months by rolling it over despite having it due within 14 days. Because of poor management, borrowers tend to liquidate the entire debt way beyond the original due date and only roll over their loan every time it becomes due.
- Payday loans are one of the youngest loans that emerged hence improving along its journey. Because of its young nature, payday loans are so flexible since limited regulations apply to it. Most payday lenders can contest on areas where there is no specific regulation.
- Payday loans are so easy and accessible that their number increases drastically every year. But despite of how easy getting a payday loan is, it is very important that a borrower approaches a licensed lender or even a bank. This will ensure that the borrower is protected and that the lender is operating under proper regulations.