How does a payday loan work?
The concept of a payday loan is simple: borrow some money for a short period, usually less than two weeks, and pay it back when you pay. The lender charges fees related to the amount borrowed, often up to $ 20 per $ 100 loan. Since the credit check is superficial or non-existent, payday loans are desirable for individuals with low income or bad credit. Easy credit replaces credit offered by recognized institutions, which are more stringent. This credit looks like a cheap loan, but this illusion amplifies the danger.
Regarding the car that is in the garage, the loan of $ 75 is indeed repaid at the end of the week, but, it will run out even more money the following week, the costs related to the loan have eaten up the budget, so you have to borrow more because the financial hole is now more prominent. A few weeks later, there is no more money. The shaft has become an ostrich nest, and you are a prisoner of the lender in order to be able to shop for groceries.
Unfortunately, situations like these are all too every day, as some people don’t know a better solution, and get lured by promises of quick approval, small payments, and immediate payment of borrowed funds. Some less scrupulous lenders are well aware of the effect of their financial product and are happy to reap profits at the expense of financially vulnerable people.
Beware of quick micro-loans
In some jurisdictions, it is prohibited to offer payday loans. Some companies prohibit this by providing short-term loans, which must be repaid in less than six months. These loans often contain hidden fees. The costs, which cannot be paid directly, will be financed from the amount borrowed.
Without being tainted as negatively as a payday loan, small, short-term loans have the same effect on a person’s budget and present themselves with the same illusions of speed and ease.
Not even as a last resort
My suggestion is, therefore, obvious: avoid payday loans or other small short term loans. Interest rates, which are close to illegality, numerous and high fees, offer the perfect cocktail of financial distress. By giving the illusion of a solution, these loans are designed to tie up an individual’s future income and make him utterly dependent on the lender. Several complaints have been made to the consumer protection office, and reports of unscrupulous lenders are increasing across the country.
Specific regulations have been strengthened: mandatory disclosures cost limits. The rules vary from province to province, but the fees do not decrease. The number of people, having used payday loans or small loans, who have to resort to consumer proposal or bankruptcy.
An option to payday loans is the consolidation loan from a credit union or a bank. The rates and monthly payments will be reasonable and viable and allow you to reduce your debt while living with dignity. A tightly managed budget and a savings plan are essential tools for avoiding financial difficulties and coping with the unexpected.
If a consolidation loan is turned down, you are overwhelmed with debt, or you have been caught in the grips of payday loans, a free, confidential consultation with an authorized MNP Insolvency Trustee can help you regain your financial health. Also you can visit online for payday loan debt help.