When High Interest Loans Are a Scam and When They Are a Savior

They don’t call them loan sharks because they play fair. Predatory lenders are notorious for their ingenious ability to prey on people who often find themselves in the position where they need a big cash injection days or weeks before payday. They use the simplicity and the access to lure many folks into repayment plans that can quadruple the interest rate in weeks. But many governments around the world have fierce regulations keeping lenders in line. Not every short term loan lender is a crook. Many wish to provide a means for people who otherwise don’t have the means to get a cash advance a chance to do so. However it’s not in their business model to tell you when it is and when it isn’t a good time to use a “payday loan”. You need to find out yourself. I’ve outlined a general guide below:

When High Interest Loans are a Scam

Many people who take out short term high-interest loans simply don’t do the math. It’s often assumed that these loans are ideal for tangible necessities like food and gas, but that couldn’t be farther from the truth. If you’re in the position where you need such a loan to accommodate those necessities, that’s an indicator of the likelihood you’ll be in a similar situation next month or the one after. Only when that day comes you’ll also be dealing with paying back a $300 loan that’s now become $650. If it comes to feeding the family for a week or paying the credit card bills, you need to do some calculations to figure out where the money is going and how to better distribute your income. Basic financial advice so I won’t digress. If you’re ever in this position, payday loans are almost never ever a good idea.

When a High Interest Loan MAY be a Savior

The first thing you have to do is to educate yourself on what the potential payback amount will be if you don’t pay it off as soon as possible. If you’ve done the math and determined you can most certainly pay off the debt as soon as your next payday arrives, it becomes a wiser decision to take a payday loan out. But due to the intense risk factor associated with short terms loans regardless of your potential to pay them back, you need to know when it makes the most sense to take one out. Avoiding a late credit card payment is justifiable if the penalties equate to a higher amount overall than if you took a payday loan out. Being saddled with last minute vacation costs can eat away at spending money, which case a short term loan can do better things for you than a credit card that can be racked up carelessly with almost as high of interest.

Many short term loan lenders offer first time customers with significantly lower interest rates. Take advantage of that if you’re using a payday loan as a one-time emergency. If you’re using them habitually it’s time for a personal finance examination, but when you need them and can avoid the usury tactics, they can be the unlikely lifesaver.

 

Post by Taylor Wilson

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