When money gets tight, people often look for credit options to get them over the hump. If you don’t have credit cards or can’t get a loan from a friend or family, then you might consider a payday loan.
Your basic payday loan is a small amount that you pay back in installments, typically on your payday.
If you’ve heard of payday loans, they don’t enjoy the best reputation with everyone. You might wonder: “Are payday loans safe?”
You might worry about whether they’ll affect your credit score or if they’re even legit? If you’re considering a payday loan, keep reading for the truth about payday loans.
Are Payday Loans Legit?
Yes, payday loans are a legitimate form of credit. Companies handle these kinds of loans all over the country every day.
You can typically find company information on their website and through external sources like the Better Business Bureau.
Are Payday Loans Safe?
On the face of it, payday loans are a relatively safe form of credit. If you default on the loan, the company will send your account to a collections agency like any other business.
Some companies even get positive feedback. You can see one in this review.
Will the Loan Hurt My Credit Score?
A payday loan will not hurt your credit score if you get one. It also won’t hurt your score if you make regular payments on the loan. Payday loan companies often report your payments to the credit bureaus like a bank or credit card company.
Assuming you make your payments on time, they could even help your score a little.
Why the Bad Reputation?
The main reason payday loans get a bad reputation is the interest rates charged on them. Payday loan interest rates are often staggeringly high. The APR on payday loans often goes as high as 500%.
In comparison, most people consider a credit card APR of 30% as excessively high.
With such high-interest rates, some advocacy groups consider payday loans a kind of predatory lending. They view the loans as encouraging poor financial management. They also see the loans as encouraging an unhealthy cycle of debt.
Should You Apply for a Payday Loan?
Whether anyone should apply for a payday loan remains an open question. If you can’t secure the funds any other way, a payday loan might make sense. If other options for getting the money exist, those options may cost you less in the long term.
Deciding About Payday Loans
Are payday loans safe? The short answer is that they are safe.
The bigger question is this: “Are they wise?”
A payday loan comes with a very heavy interest rate. You can end up paying out more in interest than you borrowed. In those terms, they are generally not a wise choice.
If you desperately need a true one-time infusion of cash, they may make sense.
Looking for more financial insights or news? Check out the articles in our finance section.