Many Americans are used to living pay check to pay check and now in these times, more and more people are under the real stress of how they will be able to pay their bills.
Payday loans in Florida have long been a popular staple in the American economy that can often seem like a tempting offer because of the quick timing on how long it takes you to have cash available to you. But are these loans something we should be avoiding? Most financial experts say yes, that financially they can have harsh and insurmountable consequences. The large fees that come with paying back a payday loan are particularly a catastrophic outcome for the borrower that creates a snowball effect of having to pay back more and more money.
Payday loans, or cash advances as they are typically referred to, are a short term, small dollar amount, loan that provides instant cash for the borrower. These loans are typically expected to be repaid within two weeks, or close to the timing of your next pay check. Most of these types of loans have an interest rate of an average of 391%. In laymen terms, that means for every 10 dollars you borrow you could be owe as much as $39 of paid back on time. However, if the borrower is unable to pay back the loan in the required two weeks, the interest rate can skyrocket up to as high of an interest rate as 52%, quickly increasing the amount of money that needs to be paid back to the lender. Many of the borrowers who use these types of loans are unable to pay the cash advance back in the required two weeks, forcing the borrower to ‘re-borrow’ the loan, thus resulting in an increased interest rate.
So why do people even consider these types of loan if they are so detrimental to the borrower? Easy accessibility and loan conditions. While many loans require extensive credit checks and references, all most states require for a payday loan is proof of a paycheck and a bank account in good standing. For people who do not have good credit scores, this type of loan is appealing and potentially their only option. Every state differs in how they handle cash advance loans, some having much lower limits on how much can be initially borrowed as well as how high interest rates can be.
Furthermore, many states actually prohibit payday loans all together, such as Connecticut, Massachusetts, and New Jersey to name a few.
With all the terms, conditions, and high interest rates these types of loans entail, finding a different option when available is always in a borrower’s best interest. While the payday loan may seem like the easiest solution, in the borrower’s near future it will become clear it is the worst option.