If you’ve been watching the news at all lately (especially in the UK – I think it’s pretty similar in the US), you may have found it hard to miss stories about people who have been sucked into payday loans. There’s hardly a week that goes by without a story popping up that’s related to it, and it’s clear that most people sympathise with the person who is in debt and having their story told. Now with most news stories there’s normally a slant towards favouring the consumer side of the story (and rightly so), which means the companies who have lent this money take a battering, but if you stop for a second, you could look at the other side of the story;
1) The borrower knows what debt they are signing up for as it’s made clear in the terms and conditions
2) The borrower has requested this money – it’s not being forced down their neck. The loan provider is merely offering a service
3) If lenders refused to lend money, the economy may be in a worse state than it is. After all, cash would stop flowing and no spending, means a shrinking economy.
There are plenty of other points that could be made here. But then looking from the consumer’s perspective;
1) The lender should have had better criteria and credit checking in place to see that the borrower may face difficulties repaying it
2) Repayment terms and conditions can always be made clearer. Most people don’t check the small print
3) Some providers charge high missed payment fees. This leads to the borrower not being able to afford the repayment and thus a downhill spiral kicks in.
So, it seems a pretty even fight from both sides of the argument. However, there is no escaping that fact that Payday Loan companies are starting to dominate the lending markets during the world’s economic problems. There are also less companies who are offering consolidation loans that could help people in a downhill spiral to get out of their debts and have a manageable monthly payment, however, light can be found somewhere in that dark tunnel! – Guarantor based loans allow people who have a poor credit history to borrow large enough sums to usually pay off their payday debts and be left with a manageable monthly repayment, there’s a good section here on what is a guarantor loan, it’s worth reading if you’re looking for a fixed term unsecured loan but don’t have the credit rating to usually obtain one. There are also charities and government schemes to help you work through and shake off any problematic debts you may have.
So there you have it. In my opinion, payday loan companies aren’t particularly bad, but maybe they could make things clearer for borrowers. The good news is that there are options, charities and organisations available who may be able to help you if you get stuck in a ‘debt rut’.
Payday Loan companies, in my opinion are not good or bad – they are. Problem is that the people who turn to them have very few other options; and desparation breeds problems. Structural problems need to be approached by structural solutions – make sure that people have other options than payday loans.
The one problem I see with guarantor loans is this: will someone who has gotten into trouble with payday loans be able to find a guarantor? I know I’d be unwilling to potentially assume the liability for someone else’s payday problems.
One can not undo the damage that has already been done. But, yes, I agree with you that before lending, the institution should analyse the repaying ability of the borrower.
Wayne – that’s a good point. But friends and family members are usually willing to help out someone in need. Another point is that tha guarantor often doesn’t know the details of the applicant’s credit history and so is willing to give them a chance – this cannot usually be said for banks and other finance organisations.
Here’s a peace of advice to everyone, if you have already borrowed an amount through payday loan better off pay the amount directly to avoid larger interest fees. And for those that are already indebted and want to get out of the payday loan horror, escaping is good yet it isn’t the kind of solution that you are going to do, better find a way to clear out your debt than to be indebted forever; it’s more hard to have a bad credit score nowadays.
When I first read about payday loans I couldn’t believe my eyes when I saw the incredibly high interest rates they charge. The companies of course say that no one actually ends up paying several thousand percent APR, as these loans are meant to be short term only. The fact remains though that even a loan for one month is costly when compared to other forms of borrowing, it’s just that no one else is interested in providing such short term loans.