Problems of Pay Day Loans

Everyone at some point in their life has come into some kind of financial problem. One thing that may seem tempting to fix different financial issues is taking out a pay day loan. Even though this may be something that you are considering to help get you out of debt or to pay this month's bills, you may want to take a closer look and see why pay day loans can be a problem.

First off you need to understand what a pay day loan is. A pay day loan may go by many names like a pay day advance, cash advance, or deferred deposit loans, but in the end they are all the same thing. These are short term loans that normally are supposed to be paid off by your next pay check or pay period. Lenders will normally require you to put down some kind of security for the loan like a check or pay check. Since it is a "pay day" loan, you have to give proof of employment to show you do actually have a pay day. There are no limits to what you need the loan for and you don't have to give lenders a reason why you need the loan. There is normally no credit check involved for this type of loan.

One of the main problems of these loans is their interest rate. These interest rates can be extremely high causing you to owe more than what you originally took out. Some lenders also put on extra fees and APR, which then when it comes time to pay back the loan, there is no way for the borrower to pay it back in full. This creates a vicious cycle for people trying to get out of debt. Of course this may not be the case with all lenders, but when it comes to getting quick cash remember, nothing is free.

If you have bad credit and think that taking a pay day loan will boost your score because it is a loan, thing again. When a lender looks at your credit history and sees that you have taken out a cash advance or pay day loan, it won't look good. Having this on your credit history may send a wrong message to lenders by saying you already have trouble paying bills or staying on top of your money. Of course since the reason they look at credit score and history is to assess what kind of risk they may be taking on loaning you the money, you don't want them to think you already have financial troubles. These loans can also take a toll on your score because if you do fall victim to the debt cycle, it will reflect in your credit report.

If those aren't convincing enough, then you can search for more reasons why pay day loans aren't the best option out there. For those of you who are trying to get out of debt, there are so many things you can do instead of getting a pay day loan, like taking out a personal loan, or working with a financial advisor on debt consolidation. If you want to raise your credit score and think a loan is the way to go, then at least go for a regular loan like a home, auto, or personal loan that have normal interest rates so you can build good credit. Everyone has been in a sticky financial situation at one point or another, but there are better ways to fix the problem than taking out a pay day loan.