Payday loans are short-term loans where borrowers are charged interest rates on the basis of the amount lent to them. But critics believe that the interest rates and short-term loans are a trap and are creating a cycle of debt in the economy. In reality, these loans can benefit many needy people who require cash urgently and do not have any other resources. Let’s look at some facts regarding payday loans that show that they are really not a trap.
1. High Interest Rates – Not Every Time
One of the biggest reasons many people criticise these loans is the high interest rate. Basic payday loans are short term loans that are only provided for two weeks to the borrower. These loans are given on the basis of annual percentage rate (APR).
The important thing to understand is that payday loans, are, by design, short term loans. People talk about how the rate for these loan go up if you do not pay – which is an unfair criticism, because most loans end up becoming bigger when not paid in due time. You aren’t supposed to get payday loans and take months to pay them back – these are loans to get you out of a bad spot, until the next payday. Anyone who has been in such a situation knows how important payday loans are. Sometimes you just need money for a few days until you get paid. Maybe the rent is due, or some other payment needs to be made urgently. These are short term loans – looking at their long term interest rate makes no sense.
2. Restriction to Roll Over
Many people still believe that payday loans create a vicious cycle of debt because of the unlimited amount of rollovers. These roll-overs are set for borrowers who could not manage to repay the loan promptly. This is why the payday loan lender extended the time period of loan. This increases the interest rate as well.
Rolling-over can be beneficial for the borrower to some extent but is actually unhealthy for the economy. This is why rolling-over for loans have been restricted. Now that only two roll-overs are allowed by the financial lending firms in UK, loans cannot be outstanding for longer, thus stopping the cycle of an unlimited series of debt.
3. Main Purpose is to Help the Borrowers
Payday loans are designed to help people in need. For borrowers who require urgent help and credit but are unable to find any, payday loans can be an ideal option. According to a research millennials have also become big users of payday loans. Payday loan are mostly used by people that are in a bad financial spot. These people will not qualify for normal loans, or the normal loans would take so long to be approved that the urgent need cannot be dealt with. Is it really fair to criticise payday loans, while at the same time not making any other credit available to these people? Here are some statistics about payday loan users to give you a better idea of who they are.
- Less than 50% of them have their own house.- They earn anywhere from $25,000 to $50,000 on an yearly basis.- Many of them are under 45 years of age.- Most of them have a job
4. Given Priority Over Banks
As mentioned above, millennials are looking for alternative options for financing, and banks have been left behind. Payday loans are one of the flexible options for them as they do not have any overdraft fees. Banks have now raised their overdraft fees which can result in expensive drawing. Additionally, the fees of overdraft also get accumulated, making it expensive for people. When a borrower is able to pay loan to the lender timely, they do not incur a too much fees, which is why it becomes a more viable option for you to obtain money from payday loans instead of banks.
5. Clear and Vivid Agreement
Critics believe that there are certain hidden aspects in payday lending. In reality, the lending agreement has everything clearly defined in the document. The instructions and details are all clearly written in the document and there are no hidden charges in it. Moreover, while banks have interest payments and balloon payments, there is nothing accrued in payday loans. Providing clear and vivid details in the document, the financial lending institutions first let the borrowers read and then clearly let the borrower decide. If something was not mentioned in the documents, the loan would become void, which is why payday loan providers always ensure all the information is displayed correctly.
Payday Loans are Life Savers
Payday loans can save you by allowing you to make payments in your time of need. If you need to pay the rent now or risk getting evicted, you cannot afford to wait for your payday to come.. Though you have to repay the loan, they give you the opportunity to make up for the financial lapse later on. These loans are ideal when a borrower requires money to solve small financial issues.
Payday loans can help everyone requiring money. Lending institutions do see the credit history, but if you have a bad credit history, it is not an impediment. Also, the lending institutions can provide you anonymity if you ask them to, helping you to secure your image and financial position.
So, When are You Getting Your Payday Loan?
Now that you know the facts behind payday loans, we hope that any misconceptions you had about them have been cleared. If you require payday loans, you need to ensure that you borrow money from an FCA firm. Compare the interest rates here and take help from appropriate FCA lending institution promptly.