Payday loans support millions of people who require urgent money for satisfying their needs. These payday loans have been criticised around the world due to their nature and characteristics. Google also banned pay loan advertisements. Why? When something is benefiting people and provides urgent cash, is it too bad to handle? The issue is debatable, with some misconceptions and myths that need to be cleared first.
Critics believe that high-interest rates and short-term loans are trapping borrowers in the cycle of debt, something which is not beneficial for the entire economy. While this is the main problem highlighted by the critics, most people also avoid payday loans because of the high interest rates associated with them. But it can be one of the best alternatives when you are in urgent need of money. Payday loans are of different types; 1 hour payday loans and 30 days payday loans being the most common forms.
In order to clear the misconceptions about payday loans, let’s explore how payday loans make sense and are not too bad for borrowers as well society in general.
High Interest Rates only Result in Continuous Roll-over
Basically, payday loans are 2-week loans that are provided to the borrowers. They are short-term loans and are not provided on a yearly basis. Critics say that payday loans have a high annual percentage rate (APR), but the truth is that it is a typical fee that is charged by payday lenders. Also, it is only the 15% that is charged by the lenders for a 2-week loan.
The interest rate is not generally higher; it only reaches a higher level when the loan is rolled over. For example, if the loan is rolled over for an entire year, it would mean the loan will roll for 26 times. This is a rare case as there is a limited and restricted number of roll-overs as per the payday loan rule.
Limit to Roll-over Does Not Create a Vicious Cycle of Debt
Many critics believe that payday loans create a vicious cycle of debt. This is not true and is a misconception. Linking it with the previous point, we explained that there is a specific limit to roll-overs. As roll-overs are limited in the UK by many financial lending firms, loans cannot remain outstanding for longer periods of time.
They can only roll-over for a maximum of 8 weeks. After that, the lending firms take serious action towards the borrower. They can either fine or keep any of their belongings as collateral. Hence, setting a limit for roll-over does not create a cycle of debt.
Core Aim is to Serve the Needy
Along with the cycle of debt and high interest rates, payday loans have a core aim to serve the needy people. Those who are in need of urgent credit and are hit with unexpected cash emergencies, payday loans can be a go-to option for them. But critics believe that payday lenders are taking advantage of poor consumers, minorities and senior citizens by charging high interest rates and are creating a vicious cycle of debt. According to a research, people who take payday loans are needy and belong to the middle-class. Payday loan borrowers include people who likely:
- Earn between £25,000-£50,000 on a yearly basis.- Less than 50% of them own a house.- Most of them are married and are earning below the average income.- More than 90% of them are under 45 years of age.
Better than Banks
Another reason why payday loans make sense is that they are better than taking a loan from a bank. Nowadays, banks are raising their overdraft fees which can result in expensive drawings. This can be really detrimental for the borrowers, and this is why it is good to choose a payday loan as it is better than banks and does not have incurring fees. Additionally, the overdraft fees can also accumulate; this is why payday loans are a wiser option in this regard.
Cheaper Penalties and Fines
What if you have to pay ticket and court costs? When you do not have funds also, it might be cheaper for you and better to consider getting a payday loan. Not paying the court costs can lead you to serious penalties and fines which can further create more troubles for you in the long haul.
Therefore, to avoid additional penalties and fines by paying money you owe to the court, payday loans can be one of the best option. Additionally, when you require payday loans more often, the interest rate can be lowered after negotiating with your potential lending firm, helping you save some more money in the process.
Payday Lending Fee is Not Misleading
Another great aspect about payday loans is that the lending fee is clearly outlined in the lending agreement. Payday loans charge a flat fee and there are no hidden charges. Also, there is no accrued interest and balloon payments like those when dealing with banks. This is why it is said that it has a very vivid and clear criterion. But according to some critics, payday loans have very high fees and these lending institutions are taking advantage of the needy, which is not true. The financial institutions’ rule book clearly states everything in detail.
Get Your Payday Loan Today!
We have presented some elements that support payday loans. With several advantages, payday loan firms are on the rife and many people are taking help from these short-term loans, regardless of the criticism they have received. If you are also looking for a credible lending firm, find a FCA-certified and credible lending financial institution for fulfilling your urgent financial needs and requirements promptly at Quiddi Compare. In just one click, you will be able to find your best financial institution quickly. You can compare the rates and opt for the lending firm which is best for you. Good luck!