You may have heard the payday loans are predatory, but why? In this period of economic downturn, more and more people are running into financial trouble. There are many different choices when it comes to choosing a loan to help you get back on your feet, but some options are better than others. 1st Choice Money Center cares about its customers, so we don’t want to see you get coerced into taking out a payday loan in Utah. Here is your guide to understanding the risks of taking out a payday loan.
What Is a Payday Loan?
A payday loan is a small, short-term, unsecured loan. The laws surrounding borrowing vary from state to state, but on average payday loans are capped at $500. In some states the limit is as high as $1,000, while in others it’s as low as $300. Payday loans get their name from their original purpose — to get you enough cash to make it to payday. As a result, the payday loan plus its financing is typically due within two weeks, or by your next paycheck, social security payment, or other cash deposit.
Why Do People Get Payday Loans?
An average of approximately 2.5 million households in the United States take out payday loans each year. The reason they’re so common is because unlike many other loans, payday loans often don’t require credit checks, steady income, or any proof that the borrower has the means to pay off the loan. They also allow the borrower to get cash right away. Although there are cheaper, safer alternatives to payday loans, many people don’t know about them.
Why Are Payday Loans Bad?
Payday loans have a bad reputation for a good reason. Payday loans can be extremely costly and difficult to pay off because of their high annual percentage rates (APR). It is not at all uncommon for APR for payday loans to be around 400%. In Utah, the average payday loan APR is 652%. For comparison, APRs on car loans are usually in the single digits or the teens, depending on the credit score of the borrower.
Payday loans also usually involve the borrower writing the lender a post-dated check for the full loan amount (including interest), or granting the lender permission to withdraw the amount from their bank account once the two weeks are up. If you can’t make the payment on time, the lender has the ability to simply cash the check or withdraw money from your account electronically.
Payday loans are so notorious for their predatory nature that they are restricted or illegal in 18 states and the District of Columbia.
What Is the Best Alternative to Payday Loans in Utah?
At 1st Choice Money Center, we offer installment loans as a safer alternative to payday loans in Utah. Like payday loans, our installment loans get you the cash you need right away, even with a bad credit score or no bank account. However, with our installment loans, you won’t feel pressured to pay it off in two weeks — you can take months, or even up to two years, to pay it off.