Taking a loan, from anyone in fact, can be a risky move since there is a downside to getting some money upfront. That downside is to actually pay back the money, often with interest rates.
Sometimes it might even be better to loan money from licensed money lenders that work off the legal and financial grid since they don’t have those outrageously high interest rates like financial institutions have. Or perhaps even they are implementing these kinds of things as well.
In any case, I’m not here to talk about any kind of money lender or which one you should borrow money from if you’re in Singapore.
No, today I would like to talk about some general risks when it comes to taking payday loans, you may know it as salary loans or short term loans, from licensed lenders such as financial institutions, smaller companies, financiers and so on.
While they might seem like a good thing in your time of need, let me assure you that these unsecured loans have some risks that you need to look into.
What Is A Payday Loan?
Before we can begin you must understand the definition and concept behind payday loans and who gives them. This is so that no confusion occurs later in the article when I start throwing out special words or phrases.
By definition, a payday loan is an unsecured loan that’s often about smaller amounts of money, unlike the big, residual loans you take from larger financial institutions such as banks.
When I say unsecured, I mean that this is a loan that’s not tied to any kind of interest rate, meaning that a lender can offer a low interest rate to get you inside the door and then smack you with a high rate a few months later. This is often within their legal jurisdiction, since you signed the official papers and contract before agreeing to the loan.
The deal with payday loans that attracts many people is the fact that a person’s line of credit of former credits records isn’t an issue when you’re taking the loan. There’s got to be a reason for why they don’t give a crap, right?
Related Read: Personal Loans Are Not Always Bad
6 Risks Of Taking A Payday Loan
Now we finally arrive at the actual list of the 6 risks you need to watch out for when it comes to taking payday loans from licensed lenders.
So without further ado or wasting anymore time, here’s the list of risks, in no particular order!
- The lender can alter the interest rates:
Any licensed money lender that give out payday loans has the power or jurisdiction to alter and change the interest rates on said loan since payday loans are in general unsecured loans.
So if you’re thinking about taking a payday loan then be sure to account for an increased interest rate and don’t be afraid to exaggerate this number, just to be safe.
- There are consequences for not paying the lender back:
As with anything in this world, there are consequences to anything you do and payday loans are no exceptions.
When you take a payday loan, you need to be prepared for a an increased interest rate, a strained personal economy, the fact that you need to pay this loan back and so on.
- Government officials can seize items in your possession if you don’t pay them back:
You need to be sure that you can pay back the loans you’ve taken, or else there will be some serious repercussions if you let it go too far. For example, I’ve heard of many situations where government officials from ministries and divisions seizing your property and items in your possession if you can’t pay back the loan.
Of course, this is a last-ditch resort for those people and it will require a lengthy procedure in order for this to actually happen.
But this is definitely a risk when it comes to taking an unsecured payday loan from a licenses lender since they can and will carry through on this in order to get their money back.
Simple as that.
- Your credit history is not a problem:
While this may sound like something good, it’s definitely a risk when it comes to payday loans. Why?
Banks and financial institutions take your credit history into account because they want a customer or loan-taker who can actually pay back the money.
Payday lenders use the trick of not looking at your credit history to draw in more customers that will take loans and then they amp up the interest rates to earn more money.
It’s a productive cycle for them and a risk for you as a private person.
Related Read: Licensed Money Lender Vs Bank
- You have yet another loan to look over:
Loans are always tough, no matter if it’s a smaller one or a larger one. They will always feel like a chip on your shoulder or like a burden to bear. That’s a risk when it comes to acquiring a payday loan, you increase that burden.
And you get even more pressure since these kinds of loans need to be paid back quickly, they’re no like the big ones you get from the bank.
- You risk taking a new loan to cover the old one:
This is actually a pretty common mistake and risk when it comes to taking loans and paying them back. You have a deadline for a loan coming up and you just don’t have enough time to cover this cost, so you take a new loan to cover it.
But then you have to pay back that loan as well and it just descends into an ever-growing cycle of loans and interest rates. I’ve seen this happen to many people actually.
Hope you find this article helpful.