There are advertisements in every town in America blaring the words, “$1000 Loan Today” or “Easy Cash, No Credit Check”. The sheer number of these types of advertisements leads me to believe that many are taking them up on their offers.
There are many rationalizations for getting this type of loan. Many think that it’s the only way to get needed cash in case of an emergency, especially if you have a poor credit score. This may be true in some cases. Banks will not typically lend money quickly or to people with a poor credit history. However, the costs of this type of loan can be very high.
The price of lending to people with poor credit is very high, and the interest rates and fees on these types of loans reflect that higher risk factor. A typical 30 day $500 loan will typically cost around $125 in interest and fees. If things are tight enough that you didn’t have an extra $500 in cash, on a credit card, or accessible from a friend, that kind of extra fee can be a burden. Furthermore if you are not able to make the payments, your already poor credit can be adversely affected.
If you don’t want to affect your credit, your other option is to take out another loan to pay off the first. It is easy to see how this can result in a cycle of debt that is hard to break. It doesn’t take long before what started as a $1000 loan has turned into a 5000 dollar loan.
I realize that emergencies do arise. However, the best way to deal with them is to be prepared. It is important to be aware of how much money is coming in to your account and where it is going. Once you have established these two facts, almost everyone can find a way to save some money; even if it’s just $5/month. That way you will be prepared for your next emergency, and won’t have to resort to taking out more “easy money”