Emergencies come when least expected, and often they hit when you’re not financially fit. Most people turn to payday loan options when faced with emergencies. And while they are easily accessible, financial experts do not recommend borrowers seek payday loans unless it’s their last resort.
Today, there are tons of payday loan lenders giving out instant loans. Moreover, they also welcome people with poor credit scores and other factors that disqualify them from high-street financial institutions.
However, payday loan firms have been constantly criticised for misguiding their clients and several accounts of exploitation. This article discusses the five main reasons why your payday loan may not work out as planned.
1. Exaggerated Charges
Some payday lenders charge exorbitant fees of up to a 1,500% Annual Percentage Rate (APR), making these loans too expensive to pay back.
As a result, most people seek alternative loan options and would never take a chance on payday lenders. However, some payday loan sites such as vivapaydayloans.com.au are reputable for offering reasonable rates.
2. Most are Predatory
Most payday lenders target low-income individuals or those with poor credit and other factors that prevent them from securing loans from other reputable loan facilities.
While this is the modus operandi for most lenders, including some conventional lenders, payday lenders are more infamous for preferring this method.
Furthermore, they are particularly aggressive when tracking due loans, making them a less favourable financing alternative.
3. They Are Debt Traps
Most Australian borrowers often get into debt traps due to hasty decisions or misguidance by the payday loan lenders.
If you take out a payday loan and don’t pay it back on time, you’ll almost certainly be forced to take out a new loan to pay off the first one. This will trap you in a debt cycle that is extremely difficult to escape.
4. Lenders Demand Access to Your Bank Account
Most payday lenders frequently opt to apply the Continuing Payment Authority (CPA) approach for repayments. This will enable them to withdraw periodic payments from your bank account.
Although borrowers have the power to block the lenders whenever they feel like it, most people fear that this is too far and should not be considered in the first place.
5. Some Lenders Apply Questionable Practices During Loan Collection
Payday loan lenders are not the nicest in the industry when collecting unpaid loans. They have a bad reputation for utilising severe questionable debt collection practices, including threatening emails to borrowers.
In most instances, debtors turn to seek alternative debt relief techniques out of panic without completely understanding the available options. Fortunately, most regulatory institutes have intervened to find the best solution for both parties.
How to Avoid Dumb Payday Loan Mistakes
Do a Thorough Background Check
Payday loans come at excessive interest rates. You need to find a reliable firm that offers you the best deal in the market. You can contact the lenders to compare costs and conditions.
Only Borrow What You Need
Most people indulge in the temptation of taking out loan amounts than they need. Experts recommend that you only take what you need for the emergency, even if you’re qualified to take out loans with a more significant amount. Loans attract interest, meaning you’ll pay back more interest if you take huge loans.
Have a Repayment Plan
Most individuals take out loans without having a plan of how they will pay them back. This often leads them to borrow additional money to repay the loan, resulting in an endless debt cycle.
Make a debt payback plan, even if it reduces your usual spending. Start by determining your basic needs for the whole month, then establish how t you’ll pay back the loan before taking it.
Payday loans offer more convenient ways of taking out loans as you can complete the application quickly online, and they pay out the same day.
However, it comes with the risk of leading you into more debts. Worse yet, some lenders intentionally mislead their customers to take out loans they cannot repay quickly. Therefore, you must be keen when seeking their services or other alternatives.