Why Payday Loans Can Be Hazardous to Your Financial Health

On a weekly and monthly basis, many families are living paycheck to paycheck and struggling to make ends meet. Sometimes if they feel they can't make it until their next paycheck, they may be tempted to turn to loan companies that offer payday loans and cash advances.  Companies that offer these types of loans typically charge double-digit interest rates in exchange for providing immediate cash.  The problem is that if a family is living paycheck to paycheck, then it is already implied that there is really no cushion of savings and one of the biggest issues they face is that their income is either too little or just enough to cover their expenses.  So the effect of securing a paycheck advance is that the net buying power of their paycheck (which was already too little or just enough) gets decreased by a significant percentage.  This in turn can cause a snowball effect because they then actually become in worse financial condition in the subsequent week or month.

While using these types of loans can become necessary to adjust for an unexpected one-time expense, families should resist the temptation on a regular recurring basis in order to avoid the snowball effect.  While it may not seem like it at the time, it is nearly always better to either borrow money from a friend or family member or to take a hard look at reducing spending to make ends meet.  Another option may be to consider a car title loan, which in effect uses your vehicle as collateral to secure an advance.  This is logically superior as compared to using your paycheck, because even though you have made a promise to pay, it is still essentially an unsecured loan.  However, be sure to shop around because using your car title can also incur fairly high interest rates.  Also, care must be taken to pay it off quickly and get your title back and not just "letting it ride", no pun intended.

In summary, the use of payday cash advances will virtually always worsen your future financial condition, especially if used on a recurring basis.  If necessary and in the case that all other options have been exhausted, they may be utilized in certain circumstances such as when an unexpected emergency one-time expense occurs.  Also keep in mind that obtaining a collateralized loan is typically preferable to uncollateralized, because usually the less collateral you provide, the higher the interest rate you will be charged.