All you not to know about Loan Till Payday and how to Minimize the or Avoid the Completely
Loans till paydays are also called unsecured loans or cash advances are given to those who have a regular source of income. You might think that they are unsecured but in real sense, they are secured because you have a salary and that is the security that lenders are using. On the other hand, loans till payday are not like any other loan. That is basically because they carry a huge interest rate. Most of the payday loans are rated at 12 to 16 percent but this type of loan can actually attract an interest of up to 24 percent. That is a very high-interest rate.
What makes till payday loans very expensive?
When we talk about a loan is expensive, we are basically talking about it carrying a huge interest. Interest is an element associated with lending that makes a loan either expensive or less expensive. As for a till payday loan, there are a number of things that make them expensive. The first thing is that they are regarded as unsecured loans. Unsecured loans are risky even if we view it from the perspective of a lender. In other words, since they are not laced with any collaterals, there are high chances of defaulters. Since there are risks of people defaulting such loans, the interest rates are normally very high.
Secondly, till payday loans normally carry high-interest rates basically because they are offered for a short period of time. That is the reason behind them being referred to as short term loans. Short terms loans do carry a high-interest rate. The reason being the issue of cost-benefit analysis. Since they are offered in small amounts that do not exceed $1000, lenders due consider the need to accrue a sizeable amount of return from it.
Thirdly, since people have no choice but to take these loans, the lenders find it tempting to take advantage of the situation and attach a huge interest on such loans. Now if someone is desperate, then he/she might be expected to pay something nice to that person who agrees to fund him/her even when the stakes are extensively risky. That is another reason why till payday loans are very expensive. Sometimes, they are not affordable to those who do not have a regular or a reliable source of income.
Do you need to avoid till payday loans? Yes! But Why?
A financial advisor would advise you to avoid till payday loans due to a number of reasons. The first reason that they would give is closely associated with financial pitfalls that are normally encountered. The first reason why you need to avoid payday loans is that they are expensive. When something expensive, it means that it is beyond your means. The main cause of such expensiveness is the high rates of interest. Considering that normal loan rates are about 12 and 16 percent, paying a loan with an interest of a maximum of 36% percent is like giving up about an extra half of what you borrowed. For example, if you borrowed $ 1000, then an interest of 36% will be $360. That means you will pay a total amount of $1360. $360 is slightly less than half of $1000. If we view it with a third eye, you will realize that this type of loan is very expensive. That is one of the reasons why it is very important for use to avoid it altogether.
Failure to pay on time leads to an added fee or penalty
In a typical world, you will realize that most people may not be able to pay within the 3 or 2 weeks period they have been allocated to pay. In that case, till payday loans do require that one pays within the stipulated date or else pay the amount plus an extra fees. When fees are carried out to the next due period, then a borrower will be expected to pay the amount he/she borrowed plus the two due period fees. For example, if you did borrow about $500 and the interest is about $120, then you will pay $500 plus $240 (fees for the due defaulted paydays). This is an issue because it will keep you sinking into debt at all times. There will be no time when you will stay afloat. One needs to avoid these short term loans because it will lead you into a sinking financial ship.
Till payday could lead to loss of property and assets
Considering that they are unsecured loans, till payday loans could drive into huge debts. When debts pile up and not paid, then the next thing will be debt collectors on your doorstep. Yes, debt collectors! Debt collectors are unwanted visitors to those who have defaulted till payday loans. The ruthlessness of debt collectors will certainly lead to loss of property and assets tied to your name and if worse goes to worst, your savings might be taken away as well. In order to avoid that, you need to avoid payday loans.
Borrowing payday loans are tempting and attractive
Considering that there are no guarantees and collaterals, people do get it irresistible to avoid payday loans. As such, most of us will run to these loans in the name of settling rent bills, electricity, medical and even settling other debts. It is upon us to resist such temptations by taking medical and health insurance of different types. These will cover all your miscellaneous needs in times of emergencies.
When things hit the wall, the lender can access your bank accounts
What will you feel when a creditor access your bank account and might even request it to be frozen until when you pay their loans? It is a very bitter feeling. It is very crucial to avoid all the types of till payday loans because they harbor more financial problems other than financial satisfaction. At least you now know!
References:
Last updated on
By 
Chris Miller
He worked as an attorney practicing insurance defense and commercial litigation. He covers lenders, bank accounts, mortgage rates, refinance rates, and borrowing and savings tips. You can reach Chris Miller at chris.miller@siloans.com.
