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Hidden Risks And Soaring Interest: The Real Cost of Payday Loans Revealed
It doesn’t matter what you earn, making ends meet is tough these days. According to CNBC and CareerBuilder, 78% of full-time employees live paycheck to paycheck, with 71% of US workers struggling with debt and many of them believing that they always will. Because monthly wages are being used to cover day-to-day expenses, there is little to nothing put aside for emergencies.
Enter payday loans — also known as cash advance loans — the seemingly simple solution to your monetary woes. Essentially, a payday loan is an advance on your next paycheck, given with the agreement that it will be repaid upon receipt of your next one. Generally, these quick loans are deposited directly into your bank account once approved.
No frills, no fuss, right?
Wrong. Unfortunately, while it appears to be the best, quickest option at the time, payday loans can perpetuate a cycle of debt that will place borrowers in a worse position than before. Eventually, many have no other recourse but to ruthlessly cut budgets, ask friends and family for help, pawn household items, or resort to taking out another loan. Money Crashers elaborates on the dangers of payday loans:
- Renewal fees: if borrowers can’t afford to pay back the loan in time, they have to renew the loan or take out another. And so the interest grows until it can eclipse even the original amount borrowed.
- Collections: While the lender can take money straight out of an account, what if it’s empty of funds? Likely, you’ll get hit with a non-sufficient funds banking fee. Next, the lender will keep trying to get the money from the account, often slicing up the debt owed into smaller amounts. This is not to mention the collection process with calls, emails, and even letters from lawyers following swiftly.
- Credit impacts: should you default on the loan, there’s a very good chance the Credit Bureau will find out about it. This may damage your credit score. Conversely, if your loan is repaid on time, the lender probably won’t report it, meaning your credit score will not improve.
- The cycle of debt: In our opinion, the cycle of debt is the worst of the dangers. The Consumer Finance Protection Bureau states that roughly four out of five payday loans end up being renewed or rolled over to a new loan. It’s tough to break the cycle, and often in the trying, the hole is dug all the deeper.
So what is the solution? Avoid payday loans altogether in favor of an employee benefits solution that values financial and personal wellbeing, one that navigates the many pitfalls of predatory money lending…
Tried, trusted, and transparent: TrueConnect has your employees’ best interests at heart
Financial emergencies aren’t scheduled and health scares aren’t marked on the calendar. We understand and empathize with the burden financial debt can place on an employee’s shoulders. Not only does this stress hamper their personal lives, it can filter through to the office by adversely affecting productivity, punctuality, and attitude.
At TrueConnect, we pride ourselves on being able to help you assist your employees in their time of need. TrueConnect is a technology-driven solution that is no cost to employers and offers small dollar loans of up to $3,000. These loans are repayable via convenient, automatic paycheck deductions over a full year.
TrueConnect provides a safer alternative to predatory lending practices in the following ways:
- TrueConnect meets and exceeds all regulatory requirements for consumer bank loans
- The platform gives employees access to a safe, regulated bank loan
- It separates the employer from the personal financial lives of employees while providing a safe solution to employees in need
- We do not use credit scores to qualify employees for loans, but repayments are reported to the Credit Bureaus, which may be a positive credit building activity if payments are made on time.
- TrueConnect users receive 6 free credit counselling sessions annually from a nationally recognized credit-counselling program, LSS Financial Choice
- There are no hidden rules. TrueConnect is upfront and honest with regards to repayments
When employees trust you the office changes for the better
The relationship between employee and employer is an important one. Feelings of neglect can foster resentment in the workplace, which is ultimately not conducive to a productive office.
Be the better business by taking an active role in your employees’ personal lives should they find themselves in a tough position. Build trust in their eyes, and make it known that they are not just a number, but a valued and cared for member of the team.
Book a consultation with TrueConnect to provide your employees with the financial well-being they need to feel secure.
For more information on what we can offer you and your employees, please head over to our website.