The American Lifestyle has been infected with instant payday loans for a very long time. We’ve heard lots of stories on the advantages and disadvantages of taking out loans. Most stories from borrowers would be about how they got trapped in cash advances, some are successful in paying off everything they owe; some are still looking for ways to escape ‘The Loan Trap’.
Payday Loan Companies are often using the phrase “We can help you get financial freedom”, but it seems that the opposite actually happens to customers. Small, short-termed cash advances may really be beneficial for responsible borrowers in times of temporary emergency money needs. However, if you think about how the loan industry works, a responsible consumer can really be trapped into paying off debts and borrowing again from the same lender or from another loan company.
How can a borrower get unconsciously trapped in the loan web trap? Most lending companies establish their offices in areas constituting of low- and middle-income earners. Aside from the fact that some online lenders skip the customer information verification process which lets other low-income earners or even unemployed individuals be able to take out a quick loan. Remember as well that a borrower’s monthly income rate is the basis for computing how much you can borrow.
Now, if a consumer is a low-income earner then the amount he most probably will be able to take out is a minimum of $500. Take note that some lending companies offer a minimum of $500 up to the amount of a customer’s monthly salary. Understandably, most borrowers won’t settle for the minimum amount because they think that they need that extra cash to get them by and they will be able to pay for the amount. I’m sure these consumers completely forgot about the interest rate that they have to pay and the term that they should be able to pay it all on the next payday. What happens is that they renew their loans or apply for another loan just to be able to pay off their debt or make their budgets enough until the next paycheck. This cycle goes on which incurs the borrower a larger amount of interest rate that he has to pay compared to the principal amount he borrowed.
First thing that lending companies will do is double the amount of interest rate that you have to pay plus services charges for the delayed payment. This will make paying a lot harder since you might have already doubled the amount of your debt. Aside from these, you also earn bad credit scores which mean that you have a bad reputation in paying your loan.
If piling your bill with service charges is still not working in making you pay, then the lenders will forward your information to a collection agency who can then make harassing phone calls at work or at home. This can jeopardize your employment because you are already causing the office an unhealthy working environment. Additionally, you cannot concentrate on your tasks because of the bothersome mails or phone calls.
If this is still unable to make you pay, then the lending company will take legal actions to force you in paying off what you owe. Usually, the court rules in favor of the lending companies. Remember the document or agreement the lenders have you signed? That document is legally binding and is a strong weapon against you. It can cost you mortgages or jail time.
Now, you might ask, what will happen if a consumer fails to pay off his loan?