ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If you default (you fail to pay back the loan on the due date) you’ll usually be charged default fees that are added to your debt. The amount that can be charged in default fees is up to twice the amount you borrowed. You are severely penalised for missed payments.

Detailed explanation-2: -Many payday lenders do not rely on a credit check at all. They understand that most borrowers looking for payday loans typically do not have the best credit. Instead, lenders make up for the increased credit risk by charging higher interest rates and more fees.

Detailed explanation-3: -Cost of a payday loan A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. By comparison, APRs on credit cards can range from about 12 percent to about 30 percent.

Detailed explanation-4: -Why are payday loans bad? The obvious danger of payday loans is that they can be incredibly expensive to pay off. Borrowers may end up paying more back than they would on other types of loans. Another risk of short-term borrowing is the way it may impact your finances from one month to the next.

Detailed explanation-5: -Interest Rates are Very High. Repeat Cycle of Debt. Access to Your Bank Account Information. Basic or No Credit Checks. They can Harm Your Credit Profile.