Living out of debt can be very challenging. Sometimes individuals get into debt very early in their lives, and it may require a lot for them to repay them successfully. For instance, a recent survey shows that most Singaporeans use student loans to finance their college education. This is a trend that is not only evident in Singapore but also in other leading economies of the world, such as the United States.
Besides, there are so many reasons why individuals borrow money. But if not managed effectively, debt can ruin your financial life completely. That is why we thought it wise to discuss one common type of loan – payday loans. You can easily access payday loans. But the question is, are the solutions to your financial problems? Well, in this blog, we are going to discuss in detail whether a payday loan is an answer to debts.
These are unsecured cash loans with very rates 0f interest. They are expected to be paid back within a short period. These loans are often given when the lenders are quite confident that the borrowers will pay back within the required time. Nevertheless, in case the lender cannot afford to repay the loan in time, there is always a provision to roll the loan at a cost.
In Singapore, most individuals who rely on payday loans are plagued with poor credit and lack alternative sources of funding. While lenders use different approaches to determine interest rates, payday loans have an APR of at least 400%. Many individuals think that the reason why payday lenders charge high rates is since they deal with high-risk borrowers; statistics show that the cases of defaults on these loans are quite low. In some countries, it has become prudent to regulate the interest rates on these loans.
Who Can Apply for a Payday Loans?
As we mentioned at the outset, it doesn’t require a lot to be approved for payday loans. Most lenders bypass most credit checks. Proof of income might be enough to get you a payday loan. The ease of borrowing and access have made these loans quite attractive.
Anyone can apply for payday loans visit A1 Credit and get approved on condition that they prove the ability to repay the loan within the agreed period, usually within two weeks or the next paycheck. While the loans are advertised for unforeseen emergencies, most Singaporeans use them for regular costs, including rent and utilities.
According to one study, payday loans are often given to individuals who opt to renew their investments regularly. Such people incur a lot of costs on fees compared to the sum they initially #borrow. For instance, an average person may bear at least $520 on prices for a loan amount worth $375.
The Cost of Payday Loans
Can you benefit from payday? We do not want to say payday loans are not beneficial. For instance, in case you are faced with an unexpected medical bill, these cash advances can save a life. But we also want to caution you. The ease of borrowing can be quite deceptive and get you into more trouble.
The cost of borrowing is always very high. It can be so challenging to get out of these loans once you make the first successful borrowing. We know of several individuals who borrowed with genuine reasons. Nevertheless, upon settling the loan, they felt some inadequacies that forced them into retaking the credits. They all ended up in a vicious cycle of payday loans. This is precisely why payday loans are often referred to as predatory lending. Instead of helping you solve your financial difficulties, you will end up being worse.
In most cases, borrowers return to the lenders for help because they are not in a position to repay the loan. As earlier mentioned, there is always an opportunity to roll the loan at additional costs. This might appear to solve the problem at the moment. However, the loan becomes even more expensive and more challenging to repay.
If you successfully make the first rollover, you will be required to pay an additional $30 in case you had taken a loan worth $100. This means within six months, you will be required to pay accumulated fees of $180 plus the original loan amount, totaling to $280. A lot of borrowers have become casualties of this debt cycle, applying for a cash loan to pay back an old one throughout, ending up in a financial crisis.
In light of the above, payday loans cannot solve your financial problems. Instead, these loans can only ruin your economic life. So, what is supposed to when faced with an emergency? No one is immune to crises. Knowing that should motivate you to start saving for emergencies. But then let us summarize the discussion.
Why you should avoid Payday Loans
- Very high-interest rates. This is perhaps the main reason why you need to avoid these loans. As we stated earlier, the annual rate APR might be 400%. Do you know that this amount is at least ten times more than the annual rate on a standard credit card? Being this expensive, it might be challenging to repay the loan.
- The charges are often too high. If you roll over a loan of $100, you may be required to pay a fee of at least $30. This is too much to pay as a charge, and that is why you should avoid payday loans.
- Depending on these loans can lead you into a debt cycle. As we mentioned earlier, paying one mortgage makes you feel financially deficient. To get this going, individuals are often tempted to take other payday loans, ending into a vicious cycle of debt.
- There cheaper alternatives. Only take a payday loan when it is absolutely necessary. You can borrow from friends or consider other, more affordable options.
The Bottom Line
While payday loans can save the situation in case of emergencies, they can ruin your financial life. In this blog, we have discussed why it is necessary to shun these types of lending. In our next discussion, we will discuss other better alternatives to consider when faced with a financial need.