Payday loans, cash advances, check advances, or paycheck advances are short-term loans offered at a high interest rate. These are considered one of the worst financial options for many reasons such as: high interest rates, negative effect on credit, and a bigger financial hole.
For these loans, interest rates are ridiculously high. You can drown in interest rates before you ever get to pay off the principle. Such loans can cost you an annual interest rate of 400%. This means a payday loan can cost you $270 over a three-month period whereas a credit card loan for 16% interest would only cost $15. Payday loans still have the highest interest rate even in states where the rates are capped.
Also, payday loans are easy to renew and results in exponential amount in money.
Payday loans negatively affect your credit scores, too. You might not see a dramatic drop right away, but it could hurt you in the long run. Some of the loan can be given to collection agencies and they are known to be more aggressive with their efforts to collect debt. They may report to credit bureaus and call every possible contacts such as your work, child's school, spouses work and etc. No one wants to be harassed by these people.
Such loans can make your financial hole bigger and eventually you will be filing for bankruptcy if you haven't already. For those already in bankruptcy payday loans will most likely be treated as unsecured debt, which are dischargeable. However, be aware of disclaimers on the contract that makes such loans a secured loan and not dischargeable at all. Also know that bankruptcy law provides that any debt acquired within 60-90 days prior to filing for bankruptcy is not dischargeable.
For more information, call an Orange County Bankruptcy Lawyer at 1st California Law at (949) 313-7252 for a free attorney consultation!