Short-Term Loan Booby Traps
How to avoid the pitfalls of cash advance loans and there booby traps to dodge.
Now and then, everyone needs a little help. Pulling your resources during financial challenges is unavoidable. However, there are unforgiving loan booby traps to avoid. The following tips should help you obtain a payday loan the smart way.
Debt Traps
The top reason most customers fall prey to debt traps is because, they fail to repay their loans when they are due. A market research study conducted by the Department of Financial Institutions of Illinois found that borrower’s rollover their loans multiple times.
The problem spirals into the domino effect when borrowers do not have money in their checking accounts to cover their payday loans. Then they roll over the loan. As a result, the interest accrues. In some cases, people may take out multiple loans to pay off other lenders. |
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| Solution: |
Try to pay your cash advance on schedule to avoid being caught in a debt pinwheel. The more your payments are deferred, means the more you will pay the debt in the long- run. |
A survey conducted in the state of Illinois made assessments on the life span of a 14-day loan. The average payday loan was rolled-over more than 13 times for a total of 182 days. When borrowers extend the term of their loans, they fall into the debt booby trap.
According to Jean Ann Fox, director of consumer protection with the Consumer Federation of America, "People think, 'surely by my next payday I will have enough money to cover the loan,' but often that's not the case. You pay the finance charge and roll the principal amount over and over. They end up being debt traps."
The Cycle Of Debt
Commonly, borrowers obtain multiple payday loans. In many cases, the loans are used to pay off another lending institution. This type of borrowing behavior is considered perpetual borrowing. Essentially, consumers lose by making this type of financial alternative a way of life because it turns into a vicious cycle.
| Solution: |
Pass up the temptation to use payday loans as a regular quick fix. |
Certain cash advance businesses prey on low income consumers to extend their payday loans. If you require a cash advance for an urgent situation, utilize the system to your advantage: take a minimal loan that you can afford to repay in entirety on your next payday.
| Solution: |
Avoid payday businesses that encourage roll over loans. |
The Contract Trap
Different loans carry varying penalties. Deferring payment and not reading the fine print can double the cost of your original loan. Certain loans carry payment penalties, Review and pose questions regarding the terms of any loan contract. Figure the total amount of your loan with the interest fees. Look for signs of high cost lending. Thoroughly read your loan contract to determine whether the loan you are applying has additional fees or terms.
| Solution: |
Always read the fine print before finalizing any loan note. |
