Why Payday Loans Are Bad: A Closer Look at the Risks

Payday loans are short-term, high-interest loans intended to provide quick cash to borrowers until their next paycheck. While they may seem like a convenient solution in financial emergencies, payday loans come with significant downsides with very little benefits.

Payday lenders typically charge extremely high interest rates, often equivalent to an annual percentage rate (APR) of 567% or 10.9% per week. This interest traps many borrowers in a cycle of debt. If you’ve ever heard of the “debt treadmill”, this is what it’s referring to. And payday lenders have teams of analysts looking at customer data figuring out clever ways to keep the borrower from paying off their loan. It’s a trap!

Because the repayment period is so short, many borrowers cannot afford to pay off the loan and continue to pay their other monthly expenses. This leads to repeated borrowing, where the borrower takes out new payday loans to repay previous ones, accumulating more fees and debt each time. Again, debt treadmill!

Failure to repay a payday loan can lead to overdraft fees. Not only will the lender charge you for late fees from not making your payment, they’ll also charge you NSF fees for bouncing your payment. Not only will they charge you the fees, your bank can also charge you insufficient fund fees if you overdraw your account. Double Whammy!

In some regions, payday lending is poorly regulated, which can lead to predatory practices. Although some states in the U.S. have banned payday loans or capped interest rates, others allow lenders to operate with little oversight. Think about that for a second, if payday loans helped borrowers, why would a state ban the product? Be very careful!

Do you have multiple payday or installment loans that you feel like you’re trapped and will never pay them off? KeyX Financial’s credit lines can save you up to 60%-75% in credit costs compared to an average payday loan. Give us a call at 801-364-2200 and let us get those high interest payday loans paid off for you, and get you into an actual affordable line of credit option with us. We’ll offer you affordable payment options, so you never have to go back to a payday loan ever again. People over Profits!