Do payday loans lead to bankruptcy? Stories about the negative impacts of these high interest loans are plentiful; however, these stories do not give you any fundamental idea of the true adverse effects. If you obtain a payday loan, the APR can be as high as 450%. So this can really create a big trouble for you.
The answer to the question: do payday loans result in bankruptcy? is a resounding yes. This loan can simply put you into significant financial distress.
Payday loans are sanctioned/refused on the basis of a particular credit score (distinct from a FICO score). A payday loan can really help you if you are facing a cash crunch in between paychecks.
Every year, approximately 10 million American families obtain payday loans. In spite of the popularity of these loans, very few people have a clear understanding about the outcomes of accessibility to this high-interest, short-term credit. Although the volume of the common payday loan is too small, it has been witnessed that loan sanction for the first time loan aspirants rises the two year filing rates of Chapter 13 bankruptcy by 2.48% points.
How can a loan that only amounts to 0 cause bankruptcy? There seem to be two elements working behind this. The first is that the consumers are already financially strained when they start taking payday loans. The second is the consumers who have been approved for the loan go on taking payday loans and pawn loans over and over again, which bear too high interest rates. On the basis of the statistics of formal requests for bankruptcy in the US, it has been estimated that the collective interest burden from pawn loans and payday loans adds up to almost 11% of the overall liquid debt interest load while filing for bankruptcy. Payday loan approval grows the likelihood of bankruptcy to a substantial extent.
These loans might also have a medium term effect on the personal financial conditions of the borrowers since interest payments (at extremely high rates) pile up.
Payday loans become due for repayment every pay period (usually two weeks) and on the other hand, payments for other loans are usually due every month. Therefore, debtors prioritize interest payments for payday loans and lag behind more for other payments.
For the majority of debtors who are thinking about bankruptcy, payday loans are nothing but a push in the back. Maximum probable bankruptcy clients have numerous payday loans. The interest rate is not the only factor that is pushing them towards bankruptcy. The collection procedures also play a pivotal role behind this.