If you already know a good bit about cash advances and payday loans, then you probably know that they can be useful in some emergency situations. They are quick and easy to acquire and can provide you with the cash you need to solve unexpected financial problems. However, as with all things that have advantages, there are disadvantages as well, and these types of loans suffer from the same affliction.
Payday Loans are Convenient
There are some issues with cash advances and payday loans. While they are great for getting some extra money quick, that’s the core of the problem. As we all know, we love convenience. If something is convenient, we are more likely to make use of it over and over again.
Just look at fast food restaurants. Even if we may not be in the mood for McDonald’s, we often go because it’s quick and easy. This is one of the most potent problems cash advances and payday loans offer. These two loan types are incredibly easy to get: the credit companies do this on purpose. Because payday loan requirements are easy to meet, many people are tricked into using payday loans over and over again for less important reasons. Because of the next problem, you can accrue a lot of debt very quickly if you fall into this ‘convenient’ trap.
That’s because the next problem happens to be fees and interest rates. Cash advances and payday loans are not at all cheap. Aside from being charged an average flat fee of ten dollars anytime, you make a withdrawal, almost all of these loans have astronomical interest rates, often twenty-five percent and above, and almost always above twenty at that. Needless to say, that is a huge chunk of the money you took out in the first place. Moreover, there is no grace period to begin paying the interest. Because you have to get started paying it back right away (and you just borrowed money in the first place), it is tough to minimize the financial burden.
Cash Advance Loans are not a Substitute for Savings
Cash advances and payday loans often provide a false sense of security as well. Because they are so convenient and so readily available, many people convince themselves that it is a proper substitute for saving money. This couldn’t be more false. Roughly half of the American people do not have enough cash on hand to handle even a relatively small emergency expense of a thousand dollars. This lack of an actual emergency fund from saving forces them to make use of cash advances and payday loans, often incurring a lot of debt. These two loans are for emergencies, but even then they are the last resort for emergencies. You should have an emergency fund so you can avoid making use of these potentially dangerous loans.
And of course, knowing how to get a payday loan, in particular, could put you in a debt trap that is tough to escape. If you can’t pay it back in full (including interest), you’ll incur several additional fees and charges, often worse than the original. And of course, if you borrowed money in the first place chances are you won’t have an easy time paying it back within a week or two. If that is the case, you’ll likely just end up in more debt over time, and escaping from an ever increasing debt is tough.
For these reasons, cash advances and payday loans are generally not a good idea. While it is true that they can provide you with the immediate relief you need in a dire situation, they should be used as sparingly as possible. They shouldn’t even be your backup plan so much as a backup to your backup plan. Don’t rely on them for an emergency: that’s why a savings account is important. Keep in mind that these loans have some of the highest interest rates out there yet one of the shortest payback times, and you’ll probably remember to avoid them whenever you can.