August 1, 2019

Picture it: You get hit with an unexpected bill, perhaps for a medical expense or a pipe burst in your living room, or you car broke down again. Your credit cards are either maxed out or non-existent and your friends and family are tired of lending you money. To top it off, all of your bills are due in a few days. So, your back is against the wall. What can you do? Well, unfortunately, one of your options would be to try to apply for instant payday loans or fast cash loans.

These types of loans have very few requirements when it comes to approving applicants. Most typically only require an open bank account in relatively good standing (no derogatory marks, etc), a steady stream of income, and a valid form of ID. The lender won’t even do a credit check in many cases. Sounds good, right? Wrong! So wrong!

Instant Payday and Cash Loans are Predatory

Many people are simply not aware of what they are getting themselves into when they agree to the Terms and Conditions of a payday lender. Instant payday loans and fast cash loans (among other names used to describe them) can be extremely predatory. The companies that distribute these loans know just how vulnerable these folks are. Anyone in a desperate or dire position would be very stressed and their emotions would be running high. This is totally not the ideal circumstance or headspace in which to make a major financial decision. If someone needs money ASAP, they will generally not have enough time to think it through. These situations force people into acting fast.

All this is precisely why the lender tends not to ask any preliminary questions to gauge whether a loan can be paid back at all. For the lender, it is based on their ability to collect, not the borrower’s ability to repay. Payday loans typically have an APR (annual percentage rate) of at least 400% or more which is extremely high, astronomical actually!


Fast Cash Loans vs. Credit Cards

To provide some insight, the average APR on a credit card is about 17-19%. This rate could still be considered high depending on what your credit card limit is, your spending habits and your income. Taking cash out from a credit card is even worse, the APR is usually around 25% or so. You are charged this interest immediately upon taking the cash out of the ATM and every month until it is paid.  

In the case that someone has an excellent credit score, they can apply for and receive credit cards where the interest rate is a bit lower at least on regular purchases. A well-known money hack is to open up a credit card that has a 0% introductory APR for 12-18 months. Then, you can make a large purchase(s) on the card and pay it off interest-free in that timeframe. Unfortunately, not everyone has this option at their disposal.


The Debt Trap

Instant payday loans and fast cash loans pose a serious threat and have the ability to turn into a full on debt trap if the borrower is not so sophisticated about the topic. The Consumer Financial Protection Borough has some very interesting statistics that I would like to share. You might want to sit down for this one!

Shockingly, the CFPB found that 80% of payday borrowers tracked over ten months, rolled over or reborrowed their loans within 30 days. In-Store borrowers default (AKA completely fail to pay back) on 1 in 5 payday loans. That’s a whopping 20%! Online borrowers have an even worse fate. HALF will default on the loans. The odds are not looking good.

Of course, if you find yourself needing between $80-250 and looking to save $525 on overdraft fees, then Brigit is another great option. With a membership fee of $9.99 a month, you can get access to tools that help you track your expenses, give you predictions on future balances, and if you need it, up to $250 in cash. 

Overall, it is important to be an educated consumer, really look out for yourself, and read all the fine print. Needing $200 to pay the plumber may turn into needing thousands to pay back a payday loan. Ask questions, get a financial advisor, attend the university of Google and YouTube, or do whatever you have to do to make sure you don’t find yourself in a worse situation than where you started.