The Truth Behind Payday Loans
A lot is being said about loans. Many claims that the rates of interest charged are outrageous. Other people state that they’re the sole source of financing available for those who have less than perfect credit score. There’s a little bit of truth in the two claims but there is much more to loans than meets the eyes.
A Simple Concept
When payday loans first appeared in the fund industry, they came to fill a gap not covered by any other financial product. The original idea which remains in most of the loan products of the kind is to provide a small amount of money, typically around half of the borrower’s commission for a short term (until payday) at the end of which the money is reimbursed plus a fee or an amount of interests.
This is a quick and simple way to solve a temporary lack of funds. Because there were too many credit assessments to be done personal loans took to be accepted. The concept was easy: a small amount, a term that is short approval.
How do lenders get a return on these quantities? Even The interest rate charged, simpler is greater. The high return in terms of percentages came to warrant the high risk involved in these transactions for the lender. As there are no credit checks whatsoever and the loan is unsecured, there’s simply no guarantee that the borrower will return the cash (besides his wages).
The True Situation
Problems started when the proliferation of this kind of loan drew so many unscrupulous creditors. To entice new clients, they started to provide longer repayment programs, loan renovations, interest reschedules, etc. Just like credit cards the flexibility offered by pay day loan lenders began to make a circle for people that had no control over their finances. Hence, they require a payday loan, don’t repay it on time and choose another one so as to pay the one and so on. Interests increase, debt starts accumulating and sooner or later there is a debt consolidation application essential or worst, they need to declare bankruptcy.
It’s as unfair to state that the entire responsibility belongs to the lenders as it is to say they haven’t any responsibility at all. The ads, the hidden loan provisions hidden in the fine print of loan contracts too long for anybody in a desperate situation to read and the easiness with which some lenders expand loans for people they know cannot repay without making huge sacrifices has a whole lot to do with the terrible reputation of payday loans.
Applying for a Payday Loan Isn’t a sin
If an unexpected situation arises and you do not have the money you need to resolve this, nor you have enough time finance and you know that you’re going to be able to pay off the loan by next it will not kill you to ask an advance. What you need to understand is that they are intended for emergency scenarios and you must avoid taking it as a custom to request a payday loan every single time you want money for whatever reason.