What Are Payday Loans?
In this advancing world, we are able to control everything except your budget. As a result of this, we find ourselves in financial trouble, and hardly find any clue to manage to cope up with this and able to manage the required funds. To overcome such a problem, payday loans have been introduced.
A payday loan is a very short-term loan and can have duration of few weeks. This type of loan is generally provided by the payday lenders functioning at different storefronts. Some of the payday lenders are operating online and providing loans online. This is a platform devoted to helping borrowers who need money in a hurry. This all is made possible because the application process for a payday loan is very short and the borrower gets the loan within a few minutes.
Are Payday Loans A Safe And A Viable Option?
The loan process is quite simple and the payday lender verifies the borrower’s income to known whether the borrower would be able to repay the loan or not. Once the lender verifies all the documents, the loan gets approved and the funds are deposited in the account verified by the borrower. The important thing within this loan statement is that the lender requires the borrower to write the postdated check payment included the loan payment and the interest generated on that amount.
Consider an example at that you urgently need a sum amount of $500. In order to fulfill the financial needs, the borrower approaches the payday lender and provides the required income documents to the lender. Within the few minutes, the lender verifies the documents and specifies all the details like the loan amount and the due date for the payment of due amount followed by the interest to be paid on the loan amount. After doing this, the loan gets approved and the lender verifies the bank account of the borrower and instantly transfers the money in his account. So assume that the loan was issued on February 18 and the due date for the payment is March 5, and the interest value is $70. So, the borrower needs to pay the total amount of $570 on or before the due amount.
In account to this, the lender asks the borrower to write a check back to the lender dated for March 5. This includes the total amount of $570 including the due amount and the interest charged.
The post-dated check is done as it ensures that the lender will be paid back by the scheduled date and he hardly has to worry and doesn’t chase the borrowers. Within this, the lender finds that the paycheck is automatically deposited in the lender’s account.
So from the overall process, it may seem that payday loan is beneficial and helps us when we need money. But this might seem till the point we haven’t applied for the payday loan. Once we apply for the payday loan, we will find that it’s a web meant to trap the borrowers in debt trap. The reason behind is that the interest charge for the payday loans is too high. This high rate interest rather than helping in need makes our life more painful when we aren’t able to pay the loan.
In this concern, we will find that the borrower taking the payday loan gets locked in the ongoing cycle of taking continuous payday loans. In order to pay the payday loans, the borrower takes another loan and the ongoing process of continuous loans starts and the borrower regularly pays the effective amount of salary as interest.
This all occurs just because the borrower relies on the payday loan to fulfill the expenses that could have been avoided. The fact is that most of the income gets consumed in regular expenses. The one who is hardly able to fulfill his regular expenses hardly has any scope for paying the extra amount with higher interest rates.
Nonetheless, the borrower gets involved in the trend of paying the interest amount and the outstanding hardly gets repaid.
The interest rate varies from lender to lender and generally revolves around 300 to 400% pa. Because of this reason, the borrower is hardly in a position to repay the loan and the amount of payday loan hardly exceeds $1000. Further, higher size of loan eventually leads to higher chance of loan debt and a decline in the repayment of the loan.
In all, we will find that payday loan is a debt trap and traps him in a situation where the borrower is unable to pay for the loan and hardly save any money from his income.
The basic reason because of which people fail to pay the payday loans is that they have bad credit and are incompatible to save money.
The only way to eliminate the need for payday loans is that one should become self-funding and fund himself with what he has. The reason behind is simple that there is hardly any chance for the frequent rise in the income. One can opt to avoid the expenses or be able to save money to fulfill those expenses. Once this is done, everything is found under control. Moreover, saving acts as an extra income that can be used in emergency and they hardly demand any interest rate.
The Bottom Line
Therefore, it is better to save rather than opting for payday loans to fulfill our needs. Payday loans too have to be paid but at an extremely high price. This high price isn’t managed by the borrower and the loan never gets over. Payday loans rather than helping the user act as an undefined liability. This expense hardly has any return and proves out to be the biggest liability.
The only way left behind to avoid this liability is to be concerned and be cautious before spending and save what you earn and use the saved money in case of emergencies. This is the ultimate key and a better alternative than payday loans.