If you are looking for PayDay loans there is one piece of advice you need to hear. Run…Fast!
This trap is deceptively easy to fall into. And unlike other alternative cash loans available. It is a way to get yourself into even deeper debt. And ultimately, more serious financial trouble.
Payday loans can be dangerous because
- Interest rates are high
- Payday lenders can be dodgy
- Payday loans can trap you in a debt cycle
- Online Payday loans are too easy to apply for
A PayDay loan, as defined by Wikipedia, is a small, short-term loan that is intended to cover a borrower’s expenses until the borrower’s next payday.
In other words, it is a “short-term, high interest loan used as an advance against your net paycheck.”
They are usually paid out within 24 hours of application. Making them an attractive option for people needing cash in a hurry.
In South Africa they are frequently referred to as “Pay day Loans Traps” or “PayDay Loans Scams”. Because of the compound debt effect they produce.
Payday Loans are Dangerous
Payday loans can be dangerous for South Africans, here’s why.
The trap is essentially this. A consumer takes out a payday loan to cover expenses during a month in which his paycheck does not stretch far enough.
With the intention of paying the loan back as soon as his next paycheck comes in.
However, the reality is that he needs to then pay this loan back with significant interest. So finds that when he gets his next paycheck, it stretches no further than the one from the month before.
The amount he owes then begins to roll over from month to month. Gathering high interest as it goes.
Before you know it he is paying heavy fees each pay day just to service the interest. But continues to sit with a large and ever-increasing debt.
With a warning of the pitfalls of this quick-fix scheme, our advice again is run fast from the Payday loans trap.
However if you are determined to obtain finance make sure that you know the facts. Also that you approach a credible lending institution.
So as to minimize your risk as well as the high interest that could accompany the loan.
This may interest you: Desperate for a Loan in South Africa? Read This
Types of PayDay Loans in South Africa
A PayDay loan is available as a secured or unsecured loan. Depending on the lending institution you go through.
Note that banks rarely offer Payday loans so it falls to online loan providers.
Many of whom are running very profitable scams off of unsuspecting consumers in need of some quick cash.
Most creditors will need some proof of the fact that you have a regular income and proof that you are a South African citizen.
In addition you must be over the age of 18. Some will run credit checks. However there are a multitude of offerings on the Internet claiming “no credit check needed”.
Again, be wary of this. Because the “terms and conditions” of these loans along with the interest rates can cripple consumers who were already struggling financially.
The bottom line is that PayDay loans act as a shining beacon of hope in untenable financial situations.
However that shining beacon of hope quickly turns out to be a death trap, alluringly packaged.
Currently it is not uncommon for PayDay interest rates to be up to and over 100% of the value of the original loan. Which has a significant impact on the amount you have to pay back.
Conclusion
If you’ve fallen prey to the trap, make sure you pay off as much as you can each month.
Paying a little extra can make a huge difference when a creditor is charging interest rates in the triple digits.
However, to ensure you don’t fall into the Pay Day loans snare in the first place, run fast in the other direction.
All the while remembering that quick fix loan schemes are almost never as easy or as straightforward as they appear to be.