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The COVID-19 pandemic has left many Americans in financial hardship, and with the holidays just around the corner, some individuals may consider turning to payday loans. While using payday loans and other expensive forms of credit may be tempting, doing so can lead to more serious financial problems, one startup founder explains.
“The holiday season is a busy time for short-term lenders and borrowers who feel the pinch over the holiday season especially when (it comes to) spending,” Rick Dent, founder of Pheabs, an online brokerage firm, said.
“It is better to save ahead of time or be more responsible with your finances, rather than resorting to high-cost or payday loans. These products are convenient because they make the application look simple and the turnaround is fast, with loans funded within 24 hours. But for the average person, this is a very expensive form of borrowing money at around 400 percent interest, and if you struggle to repay, the fees really start to add up.”
For many years, payday lending has only been available in a handful of U.S. states. Slowly but surely, these loans are becoming legalized in more states and are now entering the mainstream.
There are a number of startup companies that offer fast finance to consumers, but at a lower cost and with the intention to help build up your credit rating, including LendUp, which is backed by Google. More and more payday loan apps are entering the market in order to offer a solution to the debt spiral, which is suffered by millions of Americans every year.
“This is an interesting time for lending money, because some coronavirus-stricken households might be looking for extra cash, especially during the holidays,” Dan Kettle of U.S. lender Finger Finance said. “But payday loans should really just be used for one-off emergencies such as car repairs or repairing your home, and you should be able to pay them off in just a couple of weeks. They’re not a solution to long-term financial problems.”