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Direct Payday Loans - Direct Payday Loans Rarely Worth the Risk

financial credit emergency rates

Direct payday loans are small, high-risk loans which provide emergency cash quickly and without a credit check. Unlike most loans, which are subsidized by the government or lent against collateral such as a home, payday loans are borrowed on the promise that they will be paid back with the next available paycheck.

Payday loans are small, usually fitting in the $100 to $1000 range. Used responsibly, they are a means for responding to financial emergencies. Vehicles are a common cause for payday loans, as a sudden malfunction can threaten to make a worker unable to commute or a parent unable to pick up their children from school. Home repair is another common emergency, as leaking water will cost far more in the long run if not dealt with immediately. Utilities and other bills sometimes provoke direct payday loans as well, as not paying them can result in a lightless house and/or damaged credit. These kinds of non-negotiable financial crises require immediate attention, and a payday loan is a way to make such expenses the day they come up.

Borrowers pay for this convenience, however. With some of the highest interest rates anywhere, direct payday loans are even pricier than credit cards. If the payday loan is not paid back on the next payday, it threatens to balloon into a financial liability. Those consumers who need a loan to handle such small amounts generally do not have much money to spare, and they can find themselves locked in a cycle of paying off interest to keep their direct payday loan away from their credit histories.

Mini-mall moneylenders like “Check Into Cash” and “The Money Store” are the main providers of direct payday loans. Usually found next to dollar stores and hair salons, these small businesses front the capital needed for high-risk lending and provide customer support for their loans. When loans are defaulted, employees at these stores then go through the usual routes of debt collection, beginning with phone calls and ending with third party debt collection agencies.

Most payday loans sit in the 1000-2000% APR range—that is, if left unpaid, the interest would equal ten or twenty times the original amount within one year. The rates are so bad that certain states have placed restrictions on these rates, while the United States government has more than once met to discuss whether or not direct payday loans should be considered predatory.

If possible, direct payday loans should be avoided. Though there are certainly situations where a high-interest loan is better than the alternative, a direct payday loan should only be used as a loan of last resort. Even then, it should be paid off as quickly as possible, thus limiting the financial damage of its high interest rate. If the financial emergency persists, then the borrower should immediately explore other options for borrowing and not let the payday loan continue to accumulate interest.

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