When To Avoid Online Microbanking
The primary concern for anyone thinking about a payday loan should be not getting caught in an uncontrolled payday loan debt. This danger can’t be overestimated, given that the people accessing this money borrowing option have a poor credit history as well as little or no funds put aside. Such loans are extremely expensive – although paying 15 dollars for a 100-dollar loan does not sound like the end of the world, this corresponds to an APR of roughly 400%, so it is easy to imagine what can happen if such a debt is prolonged.
It is estimated by the Community Financial Services Association of America that there are roughly 20600 payday lending storefronts nationwide. Such abundance, combined with the lax conditions for getting a credit (it can last less than an hour) make it very likely at least for some people to act on the spot without giving appropriate consideration of what it takes to repay the debt (especially if a few payments are missed). Moreover, returning clients can easily get trapped in a repeat cycle losing even more money at high interest due to the simple fact that they cannot create a minimal personal fund for emergencies. All these concerns are no joke, especially when considering that payday loans have been made illegal in 13 states.
When To Avoid Microcredits
Given the considerations above, it would make sense to avoid payday loans when:
- you have other options of borrowing money at lower interest (starting from friends and family and ending with credit unions and banks – in case you have a good credit history, the later comes with more bureaucracy but also with the benefit of a smaller interest rate);
- you are unsure whether you’ll be able to repay the debt in time – note that, in case of missed payment dates, you will also need to pay significant fines and your interest rate might be updated to a higher one getting the debt out of control;
- you want to use the money to pay for longer term loans – the situation can spiral out of control given the higher interest rates;
- this type of lending can become a habit – a concerning statistic provided by the Center for Responsible Lending research states that 76% of payday loans are in fact taken in order to pay off older payday loans.
Like with many other things in life, this type of loan is all up to responsible use. Alternatively, it is easy to think of situations when it can be a lifesaver.