- Taking out new loans before repaying old ones –
This is a significant matter of concern as numerous payday lenders are willing to give out loans without pulling your credit. As a result, they do not check to see if you have any other payday loans that are outstanding and it is therefore solely your responsibility to manage any previous payments. The more loans you accumulate, the higher your principle and interest amounts. If you notice things going out of hand, it is recommended to consult a credit counseling agency that can enable you to handle all your finances.
- Debt depth –
Payday loans are usually taken when all other options for funds fail. As payday loans are short-term finances, they need to be paid back within a short period of time, sometimes even within weeks. The more you delay your payment, the more you debt increases and this will land you in a credit cycle. For this purpose, ensure you solely stick to your budget and don’t go off limits and apply for loans you cannot afford to pay back.
- High Fees and deceiving ads –
Advertisements are simply creative means by which companies convince their target audience they need things are irrelevant to their existence and persuade them into making a purchase. In the case of loans too, companies in the business of lending money do the same thing when they make the consumer feel the need to borrow additional funds to meet a set of created needs. Most people fail to understand the high fees that accompany the payday lending.
- Being unable to pay back the loan –
Payday loans are a trap. There are many cases wherein people take up payday loans frequently before the arrival of every payday, and they do not even realize that it is becoming a habit. Research shows that many people tend to pay back the loan at each payday and then borrow again before the arrival of the next payday as they feel the need for more money. Not being able to wait until payday is an expensive and easy habit to get into.
- Reduction in credit scores-
Considering payday loans do not require credit scores, borrowers most often do not realize the effect these loans will have on their credit scores. If these loans are not paid back on time, they will be reported to the bureau as an unpaid debt. Credit has impacts on so many other areas of life as well, such as one’s job. Many jobs tend to pull credit and insurance companies too both pull credit and charge double for customers with lowscores. Credit scores are a decision-making factor for most lenders and landlords.