Introduction to Pay Day Loans:
Pay Day Loans have evolved from a dire need to supply short term credit to customers across the world. Pay day loans are becoming the norm, owing to the financial instability that is sweeping every nation. Pay day loans can be called a blessing as well as a curse, because they have created a scenario where it has become highly convenient to borrow money and a curse because the term “unreliable” has become synonymous with pay day loans bad credit.
There are 2 sides to a coin, metaphorically speaking as this responsibility doesn’t lie with the lending agency alone. There needs to be an informed public, irrespective of the class of society they come from, who are availing of these short term credit facilities. Let us discuss some facts to talk about how these facilities are being given the notorious description of “payday loans bad credit”.
We are often used to seeing this headline in the newspapers where several regulatory bodies have been known to defend their argument of how pay day loans leave a bad taste in the mouth of the customer.
Understanding the concept behind these loans:
These loans cannot be put in the same category as conventional loans being offered by large financial institutions. These can be compared to the age old money lenders who lend you a certain amount in exchange for a certain inflated interest. These age old techniques have been sophisticated to suit the modern world and as a result of that, these lending agencies have come into existence. These loans need to be used only when you are in a dire need of money and should not be considered as a substitute for additional income.
Let us look at an example of this:
Suppose, it is the end of the month, and due to a minor accident, your car needs repairs. Now, you are in urgent need of cash and the expense cannot wait till the next month. In such a case, when you are confident about repaying the amount in your next pay cycle, should you use such facilities?
These lending agencies thrive on these scenarios and are a good way out of these situations.
- These pay day loans are designed to get you out of sticky situations and should be considered as an option only when such a situation arises.
- They involve minimum documentation and the process is fairly simple.
- Since they thrive on urgency, their fast cash transfer process provides you with the cash within 24 hours.
- They don’t approve a loan just based on your past credit history and make a more unbiased decision when it comes to your loan approval.
Disadvantages of pay day loans:
- These pay day loans have known to have a very inflated interest rate since they are charging you an interest annually. This implies that you need to be a lot more careful when you are applying for this loan.
- Extension of this loan means an even higher interest rate and it has resulted in a financial crisis for many individuals.
- Many customers have refereed to this means of borrowing money as a black hole as it leads to a vicious cycle of borrowing more and more money, if you are not able to repay your debt.
- Many of these lending agencies do not come under the purview of regulatory bodies and this has resulted in many of them capitalizing on a customer’s weakness.
This is perhaps some of the reasons why one would be discouraged to get a pay day loan as it can result in a series of debts which could be extremely difficult to handle. It is essential we understand how one loan can lead to another loan, as statistics reveal than more than 75 % of our population is borrowing close to 11 times a year. There are people lobbying for increasing the number of times to double in the following years.
These statistics expose a larger problem. Even though these lending agencies are doing their job by bringing short term credit to each and every customer, it is the average man on the road who is not being responsible about the way he is handing his finances. These lending agencies have been built on the pretext of supplying money to people in “need” and the more we lose the essence of their purpose, the more financial turmoil this can create. For the sake of ensuring that there can be a certain amount of stability that exists, there needs to be a stricter cap on the interest rates as supplied by these agencies. There should also be a cap on the number of loans that one is allowed to take in a year, which can limit the possibility of such damage.
Role of the Lenders:
In order to shake off this image of “pay day loans bad credit”, what needs to be ensured is a certain amount of transparency to be exercised by the lending agencies which will build confidence in the minds of the customer.
They should not observe any hidden costs and should carefully explain the implications of non- repayment of these loans. These agencies should also guide their customers in a way which instills a certain financial sense in them, which will lead them towards greater financial responsibility.
It needs to be understood that it is equally important for the public to be well informed about the services offered by these agencies, to carefully scrutinize their financial products, be thoroughly prepared for contingencies as well as be up-to-date with the developments in the world of pay day loans. Following these developments will make you more informed as well as more knowledgeable about the practices adopted by these agencies so that you don’t enter the dreaded cycle of debt. It has brought about a revolution in the world of credit lending, but it needs to be exercised with a certain amount of caution as well as thorough information.