Quick cash and easy money. These are the promises you’ll get from online payday lenders.
While it’s true that payday loans are easy to get, their terms can be complicated. From hidden fees to high interest rates, the payments for these loans can add up fast.
As the COVID-19 pandemic rages on, many people can’t pay their bills. So, they turn to online payday lenders for relief.
Why are payday loans so popular in Texas?
Payday loans are appealing to Texas residents for a few reasons. Unlike traditional loans, you don’t need good credit to get approved. In fact, most payday lenders don’t check your credit.
The application process doesn’t require a lot of paperwork. Just complete a short online application. A representative will call you to help you get your cash.
You can get instant approval on the phone. If approved, the lender can deposit your cash into your bank account the next business day.
In short, payday loans provide immediate relief for money problems. But these loans have a huge drawback.
The average APR for payday loans in the United States is 400%. If you live in Texas, expect to pay as much as 600% for access to quick cash from payday loans.
Unfortunately, the cost of payday loans is more than just money. Payday loans can be debt traps that lead to months of stress for the borrower.
How do high interest rates affect payday loans?
Classes about interest rates aren’t taught in school. That’s why most people don’t have a clue about how they work. When you get a loan that you don’t understand, it can lead to financial trouble.
Texas payday loans are short-term loan options. You should plan to repay the loan within 2 to 4 weeks. If not, the interest and fees will make the loan unaffordable.
Lenders calculate interest rates for payday loans using an annual rate. This is called the Annual Percentage Rate (APR). A 600% interest rate increases the amount of money that you must repay for the loan.
Before you apply for a Texas payday loan, understand how the interest affects the loan. Here’s what you’ll need to calculate the loan.
- The amount of the finance charge or interest rate
- The amount of money that you are borrowing
- The length of the loan’s terms
Let’s take a look at how interest rates work. Sam has a job at a restaurant. Before COVID-19, he had full-time employment. After the pandemic, his hours are part-time.
To make ends meet, Sam decides to apply for a payday loan in Texas. These are the terms of his loan.
- Interest rate/finance charge – 600%
- Loan amount – $500
- Length of payday loan – 2 months (60 days)
The approximate total that Sam will pay to borrow this money is $993. This doesn’t include loan origination, late and processing fees.
As you can tell, it doesn’t take long for payday loans to snowball into a large amount of money. That’s why you must be careful if you have to get one.
Should you get a payday loan?
It’s hard to make good decisions when desperation is running the show. On one hand, you have to take care of your basic needs. On the other, an expensive Texas payday loan can destroy what’s left of your finances. What should you do?
Carefully consider the pros and cons of a payday loan. This can help you make the right decision for you.
Pros of payday loans:
- Easy to get
- Quick money
- No credit check
- Lenders may not verify your employment status
- Unsecured loan
Cons of payday loans:
- Hard to repay
- Predatory lenders
- Designed to trap low-income borrowers into a debt cycle
- Won’t build your credit score
It’s a good idea to consider your alternatives before you sign an agreement for a payday loan. Who knows? You may qualify for a more affordable solution.
This article is provided to you by Prepare My Chapter 7. We are a debt relief agency that prepares Chapter 7 bankruptcies for people who file Chapter 7 bankruptcy without an attorney.
If you’re reading this and you are trapped in a debt cycle, we may be able to help you. Contact us at ###-###-#### for more information.