Payday loans are short-term loans that are easy to apply for, and most of the time, they are taken to meet urgent monetary needs like medical bills, car repairs or other unexpected costs. These loans have to be paid back the day you receive your income and usually carry quite high interest rates.
When you have an emergency, these loans sound quite advantageous, but they come with a lot of disadvantages, especially for members of the community who are living paycheck to paycheck as the fees and interest charged can trap these vulnerable people in a debt they may never recover from. In Australia, Payday lenders loan close to $1 billion dollars a year and actively target residents of poorer suburbs. In the United States, lending is upwards of $50 billion, with more payday lenders than McDonalds!
Sometimes, your monthly expenditure crosses the regular budget line, and if you do not any savings, the financial burden can be too much for you. With a payday loan, you can borrow a certain restricted amount to help deal with the situation. Before getting the cash, you have to give some information like your name, address and bank details. These loans are instant and quick, because after applying for one, you don’t have to wait for a long time to be approved. You don’t even have to fill in long forms and provide complex documents to acquire them. Due to these reasons, people are always rushing to get them without having a second thought.
As a quick solution to money problems, payday loans have become very popular nowadays. Most of them can be applied and received in a short time, sometimes within just 24 hours. Many people in the community with low incomes have been enticed to secure these loans without thinking about the consequences.
Payday loans are unsecured loans. Because of this, they come with very high-interest rates. The rates for these loans are highly unjustified. The borrower is supposed to return the money in a very short timespan, sometimes even within the same week. The problem with these loans starts here. Many people who opt for a payday loans are people from low socio-economic backgrounds, and most of the time, they do not have the money to pay back the loans in the duration given by the lender.
When a client is not able to pay their loan, most lenders advise them to roll over their loan amount. The roll over means that the borrower will include some additional fee because they have not been able to meet their requirements in time. The roll over is usually a fixed amount, but it raises the interest rate loan amount that is already more than the client can afford. When the client is not able to pay the loan again, the roll over happens again, and this can happen several times, resulting in a very unmanageable repayment that is now made up more of fees and charges than the original loan amount.
Most of the people who opt for the payday loans are the low-income individuals who live paycheck to paycheck. Most of them struggle to pay their bills on time, so trying to deal with these unmanageable figures can make their situations worse. Unfortunately many people who have chosen to get these loans have ended up sinking further into debt because of these high-interest rates. There has even been reports of small businesses opting to acquire these payday loans to cover themselves for materials or to cover wages of their employees while waiting on collection of a payment of their own. This is a recipe for disaster that commercial collection agency The Collection Law Group has witnessed all to often. They stated that they often-times find themselves making commercial collections on small business owners who have tried to prop up their business via pay day loans while waiting to acquire new jobs.
Many people and institutions think that payday lenders take advantage of the low-income families in the society. The concerned organizations believe that the loans are designed to profit the lenders from the people already in poor financial states. Many governments are now looking for ways to regulate the controversial lending method. In the United States, payday loans are legal in 27 states, 9 others have some sort of regulation around short term loans and collections while the remaining 14 have outlawed the practice.
For people who need instant cash because of an emergency, payday loans shouldn’t be the solution. It’s important to look for other methods before settling on this one. Most companies who lend the payday loans encourage their customers to exhaust other means before they can settle on them, because of the risks involved. Consider getting personal loans from your family or even friends, emergency cash loans from credit unions, banks or even employers. You can also consider selling items to cover the emergency cash you require. Avoid the payday loans at all costs if you do not want to sink in debt.