Why are payday loans often difficult for consumers to pay back?

• A. They typically have very high interest rates and short repayment periods, leading to a cycle of debt.
• B. They require extensive credit checks, making them inaccessible to most consumers.
• C. They are only available to consumers with high incomes, limiting their use.
• D. They are backed by government subsidies, reducing the need for repayment.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of payday loans. Payday loans are short-term, high-interest loans typically designed to provide quick cash to borrowers who need money before their next paycheck.
2. Step 2: Analyze the repayment structure of payday loans. These loans often have very high interest rates and short repayment periods, which can make it challenging for borrowers to repay the full amount on time.
3. Step 3: Consider the financial impact on consumers. If borrowers are unable to repay the loan on time, they may need to take out additional loans to cover the repayment, leading to a cycle of debt.
4. Step 4: Evaluate the accessibility of payday loans. Unlike traditional loans, payday loans usually do not require extensive credit checks, making them accessible to consumers with lower credit scores but also increasing the risk of financial strain.
5. Step 5: Reflect on the misconceptions about payday loans. They are not backed by government subsidies, nor are they limited to high-income consumers. Instead, their high costs and short terms are the primary reasons they are difficult for consumers to pay back.