Everybody has seen a time where they were desperate for money. It is a normal part of life and nothing to be ashamed of. It can be very tempting to apply for a small loan that gets you to your next payday. In Australia, there are many payday lenders that seem as if they’d offer you the world. They will often offer you money that reaches your bank account within only an hour of approval. The dangers of payday lenders are something you don’t want to ignore.
These loans are then marketed as quick and convenient cash. However, there is a high cost, risks, and consequences involved. These loans are almost far too accessible, and people often don’t understand the real cost associated. Often, payday lenders are happy to mislead you which will lead to even further problems for you.
Here are some of the dangers of payday lenders.
1. High default fees
High default fees are one of the huge dangers of payday lenders. To default means to fail to pay back your loan on the due date. This means that you will be charged default fees that are then added to your outstanding debt. The amount charged in default fees will usually be up to twice the amount you borrowed.
It is clear that the penalties for missed payments are quite severe. This is why you want to avoid payday lenders.
2. High costs
Loans from payday lenders usually have extremely high fees. Usually, they will be 20% of the amount borrowed as well as 4% per month on top. This then translates to very high annual interest rates. Payday lenders do not legally have to tell you the annualized interest rates. Not only does that pose as one of the significant dangers of payday lenders, but there are more.
There are many fees and charges that are hidden in the small print. As an example, some payday lenders will charge you $7 per day for late payment. Obviously, this is extremely expensive. Payday loans are far more expensive than any other loans from mainstream banks. Usually, mainstream banks have annual interest rates of around 8-15%.
3. Difficult to get out
Many people who choose to access payday loans are usually in financial hardship. This means that then they cannot make the repayments, they find it very difficult to get out. They will also likely fall even further back into financial hardship. This is a very less than ideal situation which is why you should avoid it at all costs.
4. Direct debit repayments
Payday lenders make you sign up to pay by direct debit on payday. This means that they take your money from your income before you can even pay for the essentials. If you cannot afford the repayments, cancel the direct debit and organize a repayment plan that you can actually afford with your lender.
5. Your credit score will be affected
In life, your credit score matters far more than you think. In fact, it can financially dictate your life completely. If you are unable to pay back the loan, your credit score will suffer significantly.
6. Borrowing again
When you can’t afford to pay back the loan, you are pretty much forced to borrow again to pay it off. This then leaves you in further debt which is less than satisfactory. It is a massive debt trap that you most definitely do not want to get sucked into. This is yet another one of the huge dangers of payday lenders. Avoid it at all costs if possible.
What are the alternatives to avoid the dangers of payday lenders?
There are many other great options that you should consider before payday loans. Even if you have bad credit, there is help available in the form of financing methods. A payday loan really should be your last resort. Here are two alternative options:
Personal Loan: Personal loans are great options when the banks have said no. You can receive fast funding and everything can be done online. Bad credit finance is also usually available and you receive the funds directly into your bank which makes personal loans far more flexible than traditional bank loans. However, it is important to take caution when choosing a personal loan provider. Before proceeding, always check for a valid credit licence number and make sure they have positive reviews to prove that they are reputable and trustworthy.
Pawnbroking Loan: These are for people who have jewellery, tools, electronics, or other items of value. Essentially, you can use them as collateral for a short-term pawn shop loan. You will receive cash for your items. Then, you are able to come back and repay the loan to receive your item. Obviously, this must be done within a set time frame. However, you don’t repay the loan, the pawnshop will be able to keep the item you use as collateral.
The two above options are better alternatives than getting into a dangerous debt spiral, another one of the dangers of payday lenders.
The bottom line of the dangers of payday lenders
If you’re in need of debt consolidation, contact the team at Debt Consolidation today. We will be able to discuss your circumstances and help to get your finances in check.