Why payday loans are bad?

@millie 

Payday loans are often considered bad for several reasons:

1. Extremely high interest rates: Payday loans typically carry exorbitant interest rates that can reach triple-digit APRs (Annual Percentage Rates). This makes them very costly, especially since these loans are usually paid back within a short period, often within a few weeks.
2. Trap of cycle of debt: Many borrowers find themselves unable to repay the loan in full by the due date, resulting in the need for an extension or a new loan to cover the original loan. This cycle can lead to a continuous accumulation of debt and make it challenging for borrowers to break free.
3. Predatory lending practices: The payday loan industry often targets vulnerable individuals who are in desperate need of quick cash, such as low-income families or those with poor credit history. This can result in borrowers falling into a debt trap where they are continuously borrowing and struggling to repay.
4. Lack of assessment for ability to pay: Payday lenders typically don't do a thorough assessment of a borrower's ability to repay the loan, focusing more on the individual's income source (such as a paycheck). This can lead to borrowers taking on loans they cannot afford to repay.
5. Negative impact on credit scores: If borrowers fail to repay the payday loan on time, it can result in damaging their credit scores. This can make it difficult to secure future loans or access to credit in the future.
6. Alternative options: Many alternatives, such as credit unions, personal loans, or negotiating with creditors, can provide more affordable and manageable solutions for individuals in need of short-term financial assistance.

It is important for individuals considering payday loans to thoroughly understand the terms and potential consequences before resorting to them, and to explore all other available options.