Are Payday Loans A Necessity

By : Admin
Loan 22/01/2018 12:05pm
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Are payday loan a necessity or a predatory?  For many, applying for payday loan is the only way to access quick cash during a sudden financial emergency, especially when they do not have enough saving. However, the interest of a payday loan is often as high as 400 percent per year and the loan term typically last for two to four weeks only. This is the reason due to which a user of payday loan often gets trapped in a cycle of loan renewals and end up paying much more than what was borrowed.

High Interest Rates Of Payday Loans

The interest rates of payday loans are very high due to which most of the people never consider signing for it. But for anyone who is in need of credit desperately to get them through the emergency they are facing, are likely to agree to such terms. Even though majority of people who applied for payday loans are likely to get caught in a trap of debt, there are many who are able to utilize the loan, benefit from it and also repay on time. Thus, if payday loan is ever faced with outright elimination, there should be other emergency credit alternative to replace it.

Are Payday Loans That Bad?

Yes, payday loans can be pretty bad, that is why no UK banks offer them. But there are several lending companies that will let you borrow them so that you can pay off your debt. Often such debt is fairly small and typically you can only borrow a few hundred pounds and the loan term is usually two to four weeks. So, borrowing a payday loan is easy but you are likely to find it difficult to repay back in such a short time frame, provided you do have no savings to fall back on because of which you applied for this loan in the first place. When in such a situation, borrowers often end up “renewing” the loan and this is when the loan provider starts making money. Ultimately, renewing the loan terms will shoot up the borrowing cost more than what you had actually borrowed.

It can get worse if you have taken out payday loans by signing over your paychecks or gave the lender permission to get the borrowed money withdraw right from your account. So, when you get your paychecks, the amount of money you owe will be taken directly from your account.

Interest Rates Are High

Just because the interest rate of payday loans are does not mean that they are absolutely unfair. The unfairness argument about payday loans shouldn’t depend on high interest rates and fees, but it should be rather on if those rates and fees are being determined by a competitive market and if they are fair. The lending companies can also justify it as payday loan borrowers are likely to default therefore, higher fees are necessary in order to cover the costs of such defaults.

Potential Alternatives

There are different potential ways to reform payday loans. Other than eliminating, the amount of interest charged can be capped and also put a cap on the number of times a borrower can renew the loan. It is always possible for a borrower to get a payday loan and avoid getting trapped in any debt, as long as they are able to avoid renewing the same debt repeatedly and repaying back on time. It will be unfair to eliminate the borrowers who need credit and will be able to pay it back in two weeks. The inability of a borrower to repay responsibly should never hinder their ability to qualify for a loan that they believe will benefit them, even though they may end up being wrong.

For anyone who does not have enough savings or asset to pledge against a bank loan, payday loan is indeed a necessity. Eliminating payday loans without offering any other option will take away their ability to make financial choices and prevent them from accessing the credit they are in need of during emergencies.