It seems that ever since the recession, instant cash loans have been everywhere as traditional sources of loans dried up for all but the most creditworthy borrowers. However, despite what they may want you to think, cash lenders and instant payday lenders aren’t cropping up to help the disadvantaged.
Like any other opportunists, these predatory lenders see the potential for huge profit in lending to those who have few other resources, since financially strapped individuals might not understand or might even be willing to pay the enormous interest rates charged by these lenders. In addition to the high costs, instant payday loans and their ilk can also cost consumers real money through identity theft scams, dishonest dealing, and other fraud.
Why Instant Cash Loans Are a Huge Mistake
Especially with Christmas right around the corner, instant cash lenders are working overtime to trap consumers with their usurious interest rates. Thanks to loopholes in many state laws, these lenders might compound interest daily, and might not be limited in what they can charge since instant cash advances and payday loans are not treated as being in the same categories as mortgages and other credit.
According Marketwatch, the average instant payday loan carries an annual interest rate of 400%. That is not a typo – if a consumer carries a payday loan for an entire year, he or she is liable to pay back four times the original loan amount, plus fees. It’s incredible to me that people do this, and I can only assume that most consumers just aren’t aware of how expensive these loans really are, or are in truly desperate straits.
However, rather than a way out of debt, such an expensive loan is actually bound to worsen an already delicate situation. The cost of these loans is so high, consumers just end up prolonging the misery trying to pay back debt that they cannot afford, and despite it being against the law in many states, lenders can and will “roll over” an instant cash loan into a new cycle, compounding the fees and interest yet again.
This is a terrible cycle, but one that is nearly inevitable with these loans. Those who do not stop and ask, “What is a cash advance, really?” are asking for trouble.
Staunch the Bleeding With Instant Loan Alternatives
No matter how bad the financial situation there is usually a more cost effective alternative to instant cash and payday loan services, which only exist to bleed you dry. Consider seeking help from any of the following sources:
- Small, secured loans. If you own anything of value, including your house, car, or even valuable collectibles or jewelry, you can get a secured loan with a far lower interest rate by pledging the item as security for your loan.
- Credit unions. Credit unions are usually more willing to work with bad credit or other situations than the traditional big banks that answer to shareholders.
- Credit card advances. If you’re seriously debating taking out a payday loan, a credit card advance might actually be a better idea. The interest rates are lower, and you might be able to negotiate an even better deal with your credit card company.
- Ask lenders for more time. Rather than taking out yet another loan, if you are too pressed to make your monthly payments for existing debt, contact your lenders right away and ask what they can do to help you through a rough patch. You might be surprised how willing these companies are to work with you.
No matter which route you take to avoid instant cash loans, be aware that all lenders must send you statements explaining your debt, payments you have made, interest that has been charged, and other key data on a regular basis, similar to the requirements for credit card companies. Learn how to understand these statements with this article.
Finally, don’t become the next victim of instant cash and payday lenders. Between the interest rates and fees that they charge, these predators are making money hand over fist at your expense. Use the tips above to find another way out, or beware just digging yourself in deeper.
I am not a fan of instant cash lenders or payday loans. I will not let people advertise them on my blog because I think they are just out of control crazy. There is no reason anyone should be paying 400% or more to borrow money.
I totally agree Grayson. I use to allow those kind of ads back when I first got started in 2008 but I got rid of them shortly after because they did nothing to help people coming to my site and I feel they even hurt my creditably as well. As for the 400% I think someone has to be nuts to take on an interest rate like that.
I personally think that all fast cash loans should be avoided like the plague! However, I don’t really blame the lenders for making these offers. Obviously people are lining up to take these loans out.
I’m sure lenders are making some big buck on these loans in fact about 4 years ago Ohio passed legislation to cut these 400% interest rates down to a maximum of 30%, but even at that kind of rate it could be very hard for people to escape these kinds of loans.
It’s hard for me to imagine ever being in the position that I would even need to walk into one of those payday loan type places. I’ve just never been that desperate.
Another alternative, although not exactly a form of instant cash, is a peer to peer loan. They aren’t mainstream yet, buy they are gaining popularity and credibility real fast!
I totally agree Matthew. Even if I were completely down on my luck I don’t think I could step foot in a Payday loan store either. I would find another way before taking out a 400% loan.
On the other hand I like the idea of peer to peer lending because of their favorable interest rates. On top of that I’ve actually wanted to invest with places like Lending Club as well for several years now but they are not available in the state of Ohio for investors. In fact I’ve even gone as far as writing them several times but they never respond.