Payday loans have many names — kansas city loans, signature loans and paycheck loans. Payday lenders provide quick and simple short-term cash to people who need money immediately. That’s the major reason they are so common.
However, payday loans come at exorbitant prices. This can — and often does — lead borrowers into a downward spiral of rapidly escalating debt. Let us look at the issue from various angles to get a full image.
The pluses. Here’s why cash advances may hold enormous appeal for you.
The transactions are secure — your financial information remains confidential.
So what would be the downsides?
The most obvious one — high costs. A payday advance can cost you say, $15 per two months. If you are borrowing only for two weeks, then that does not seem like much. But if you calculate the yearly Percentage Rate (APR), then you will notice it comes to 391%!
If you do not believe that’s too much, allow me to ask you this question. If you spent money in the stock exchange, what can you consider a good yearly rate of return? 20%? Maybe 30%? If you created a 20% return (on average) in stocks year after year, you would do very well indeed. And that is for an investment that’s usually considered high risk.
Compare that with what the payday advance businesses charge. You’re giving them a return on their money that they probably won’t get anyplace else on Earth!
There’s another, less obvious reason payday loans are hazardous. Based on some estimates, over 60% of borrowers roll over a payday advance. Many take loans repeatedly, too.
Let’s put in some numbers so that you can clearly see what rollovers imply.
Assume you borrow $400 for two weeks at a price of $15 per $100 per two weeks. In the end of fourteen days, you owe them a total of 460.