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Should I use a personal loan for vacation expenses?

This article is written by Peters and Associates.

Question: I expected a work premium that didn’t come, and now I’m strapped for cash on vacation. I am considering taking out a personal loan. I know the interest rates are high, but I am desperate and it would only be this time. What should I do?

Reply: Payday loans are rarely a good solution. When people need a few hundred dollars to hold on until their next check, payday loans might seem like a good idea, but make no mistake, it’s a trap.

In 2016, the Pew Charitable Trust reported that 12 million Americans take out payday loans each year and pay $ 9 billion in loan fees. Payday loans come with high interest rates, usually around 400%.

Because the loan limits are low – most payday loans range from $ 100 to $ 500 – some rationalize that the fees are worth the money. Unfortunately, this is rarely the case.

How payday loans work

Payday loans are short-term cash loans, usually due within two weeks of taking out the loan. The process of getting a payday loan is simple: you give the lender a post-dated check (or authorize access to your bank account) for the dollar amount of the loan plus interest. Then the lender gives you the money.

When the loan matures, the lender can take payment directly from your bank account or you can extend the loan for an additional two weeks for an additional fee. Often the payment is around $ 15 * for every $ 100 you borrow.


If you take out a loan of $ 300, the projected interest would be around $ 45. There would be an additional payment of $ 45 if you cannot repay the loan after two weeks.

It means that…

• In one month, you will have paid $ 90 for a loan of $ 300.

• In two months, it would cost $ 180 for a loan of $ 300.

• In six months, it would cost $ 1,080 for a loan of $ 300.

• In a year, it would cost $ 2,160 for a loan of $ 300.

* Note: $ 15 is a rounded estimate, and slightly less than what many payday loan companies offer. Pew reports that the average annual percentage rate for payday loans is 391%. Depending on the specific lender, this may be slightly more or slightly less. For the Pew reported average of 391%, this would cost borrowers about $ 16.29 in fees for every $ 100 borrowed.

Avoid Payday Loans and Solve the Root of the Problem

Pew reports that 58% of average payday loan borrowers struggle to meet their monthly expenses, and the average payday loan requires a payment of $ 430 before the end of the loan period.

In addition, 75% of payday loans are owned by people who take out at least 11 payday loans per year.

Although banks and other traditional lenders do not generally offer small loan amounts, it is never financially advisable to take out a payday loan until your next paycheck. The alternative options may be limited in most of these cases, but considering a payday loan or entering the payday loan cycle almost always indicates a bigger financial problem.

Unstable finances can carry a heavy burden of shame, but these feelings should never stop someone from seeking help.

The vast majority of Americans are in debt – 12 million people take out payday loans each year, and total American consumer credit card debt exceeds $ 1,000 billion, the highest on record.

Accountants, lawyers, and financial advisers, among others, can be of great help to people trapped in any type of debt.

If you are considering a payday loan or if you are already stuck in a payday loan cycle, it is time to take a close look at your financial situation and determine the cause of the problem. If you have other debt or garnishments that are causing your difficulty, consider seeking help from a reputable debt relief lawyer.

If you have no debt but are living salary to salary, it might be time to try cutting expenses, selling some assets, taking a second shift, or maybe even be to find a roommate. Whatever your financial situation, payday loans should be avoided at all costs, especially during the holidays.


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Please Note: The information in this column is for general purposes only and should not be construed as legal or professional advice of any kind. You should seek advice specific to your problem before taking or refraining from any action and should not rely on the information in this column.