Why Pay Day Loans Make Lousy Student Loans: 7 Reasons
Using pay day loans to pay for college can really backfire
. These loans have huge interest rates, terrible terms, and will hurt your chances of graduating.
Look below for 7 great reasons why you should avoid these loans in favor of better ways to get money for college tuition.
1. Addiction is Built In
One of the biggest problems I have with pay day loans is the terms. You write a post dated check, or you set yourself up with a quick loan just to get to pay day. Then, when pay day comes, you need another just to get to the next pay day.
This is a terrible business practice. If you start, you may find you can't stop using these loans.
2. The Fees and Interest Rate
On a normal student loan, you'll pay about 8 percent or less. That means that if you have borrowed $1000, you pay $80 per year for that loan. It decreases as you pay it.
For a pay day loan of $1000, you will pay about $15 in fees or interest. Do you remember how to calculate interest? That's 1.5 percent for a one or two week loan!
Over the course of a year, if you keep doing that, your interest rate would be $390, or 39 percent of the $1000. That's crazy high.
One more thing here. What if you don't borrow so much on the student loan? Then you pay less for the interest.
If you borrow less for the payday loan, you often pay the same. So if you borrow $500, you just doubled your interest because the fee stayed the same.
Very bad financial sense.
3. The Money Adds Up
Let's say you did use these loans, and kept at it for a year. In number 2 above, I said you'd spend about $390 over a year for one loan every 2 weeks.
What else could you do with that $390?
That might be enough for you to fly home for Christmas, or to pay for your books for one semester.
Think about it. That money adds up.
4. Penalties
Here's a question: What happens if you can't repay that little debt by the date you promised? Or, what if the check place gets the date wrong, and cashes it early?
Penalties - meaning more fees, more expense, less money for you. Some places charge $60 for a two week extension. Another bad idea.
And, on top of that, your bank may now charge you fees as well if the check bounced. Hopefully no one else will charge you anything, and that will be the only one that bounces.
Can you see what a bad idea this is yet?
5. Collectors
Once someone falls into this trap, they have collectors calling them. And these guys don't talk nice. You may find that they bend the rules and tell you they will garnish your wages.
Usually, they can't. They have to go to court and sue you first.
But that doesn't stop them from calling you and threatening on the phone.
You can avoid this intrusion into your life bay skipping the cash advance loan, payday loan or whatever they call themselves.
6. Bad Credit Report
This one has at least 2 sides to it. First, if you don't pay back a payday loan or you pay late, you will have a note on your credit about it. This will lower your credit score, and you will not qualify for the best rates when you need a real loan for a house, for example.
The second one is less well known. If you take out loans like this constantly, your credit will eventually show this activity. Many lenders will hesitate to loan you anything if they think you have a payday loan habit. How will you pay them?
7. The Second Job
What if you ended up paying for school with a payday loan, for tuition or books or something. Maybe it isn't the end of the world. But if you haven't paid it off and stopped using them, it may interrupt your education.
You might have to stop going to school for a while until you get out of the cycle. Bad news, right?
Very bad news. Stay away from these loans. Use student loans if you have to go into debt, preferably the ones that will offer you some benefits.
And use scholarships and grants. You don't have to pay them back, and you can avoid debt altogether.
by: Kevin Ihrig
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