Payday loans have always been regarded as one of the riskiest loan options available for borrowers. In general, the main drawback of payday loans is the high interest rate charged on the loan. Apart from the interest rate charges, there are various other outcomes too and all those drawbacks would be discussed in this article. This article would generate an alarm in the ears of those who are going to avail the loan. Payday loans have always been portrayed in the wrong way due to the advertisements created by the lenders.
Numbers of lenders who are offering payday loans have also gone up to a great extent. This is mainly due to the demand that payday loans have created in the minds of the people. Payday loans are short term loans, this even adds up the risk factors associated with the loan. Payday loans would be offered at higher interest rate and high does not mean few hundred percents of interest rate, but the interest rate might even shoot to around 1000%. Such is the risk of this loan.
Borrowers would be forced to pay back the loan amount over a short span of time and the amount that have to be repaid would end up in multiples of the loan amount obtained by the person. Since these are short term loans, the borrower is supposed to pay back the loan amount once he or she receives their paycheck. During emergency situations, borrowers would find no other choice other than opting for a payday loan.
Major disadvantage lays in the repayment of payday loans no credit check. There is a restriction placed on the loan that would force the borrower to pay the loan back to the lender as soon as they receive their paycheck. Such a huge loan amount should be repaid using a single paycheck and thus, the person would be left with few finances in the end. This would in turn force the borrower to look out for other lending programs. Such a situation would have adverse effects on the person’s financial status.
Few borrowers have even obtained another payday loan in order to payout the older payday loan obtained by them. Such a cycle would go on forever if the person does not manage his or her finances properly. The borrower would end up paying higher fees towards the loan and this would cost them a lot of money. This is not the right thing to do. This is the reason why financial advisors recommend borrowers not to take up payday loans.
Another pitfall of payday loan is the negative impact that the loan would create on the credit rating of the borrower. Payday loans would have major impact on the credit rating. If the person pays back the loan on time, then there is nothing to worry since it would improve the credit score of the borrower. But, if the person fails to pay back the loan, it would bring down the credit score of the person drastically. Payday loans should always be kept as the last option.