Hidden Cost in Payday Loans and How to Avoid Them
Even though a payday loan can be considered as a short-term fix to a financial problem, this seemingly benign solution could quickly transform into renewal of debt.
Data collected by Financial Consumer Agency of Canada (ACFC) says it all. Short term and higher interest rate carrying loans are frequently made regardless of the ability of the borrower to pay the burden off. A majority of payday loans become due with a space of two weeks, with the average fee in Alberta being $15 for every $100 borrowed. Payday loans fees per year comes to 391 percent. However, this is almost entirely due to the fact that payday loans are not meant to be taken out for a year. If a payday loan is taken out in Edmonton for example and paid back on time, then the interest on the payday loan is simply 15%. If payday loans are not paid back according to their terms and conditions, they could damage a person’s finances. Additional fees are charged by most financial companies if there is an extension of the loan. Hidden fees add to the borrower’s pain. Cashco Financial, however, is the exception. It charges no hidden fees at all.
For most consumers, the combination of accumulated fees and the high-interest rates could end in a debt which could be fiendishly difficult to get rid of. Investigations into this lending practice has showed that about 23 percent of people taking short term loans have been sucked into a debt spiral which needed them to refinance partially paid loans so that they could begin a new one. Such repetitive and extensive borrowing shows that the borrowers actually pay a substantial 1200 percent spread over a number of months.
A number of good reasons exist as to why you should think twice before taking a payday loan.
Many payday loans come with hidden fees. A loan of $100 will come with an average charge of $17.50 to a maximum of $300. The fees mentioned are in addition to the existing interest rates and loan capital. No wonder payday loans are an extremely expensive technique of borrowing money. Any person applying for a payday loan must read the associated fine print. The financial obligation must be understood prior to making the decision to borrow.
The trouble starts when a borrower has insufficient money int the account. The person finds himself unable to pay the loan. According to the ACFC, almost half of all the payday loan borrowers suffered a minimum of one debit attempt which failed or went into overdraft. Such accounts were charged a whopping $185 as penalty fees. In case there is insufficient money to cover payment and then charge a certain overdraft fee, or it could deny the payment and then charge a fee applicable for non-sufficient funds. If the latter happens, the payday lender could add a late fee or a returned payment fee. It could also be both.
A few lenders may respond to non-payment by splitting the total amount to a number of much smaller payments requests. They send all of them in a single day hoping to partially collect their money. This could cripple the financial capacity of the borrower, as a single payment request of $300 may lead to an overdraft. Three requests of $100 may result in a total of three penalty payments – coming to $34 each.
If you consider a payday loan, make sure you take it from a reputable lender that is regulated and highly transparent. Cashco Financial fits these criteria very well. We always give you the whole story and do not impose hidden fees.