What is a Payday Loan?
Many people have heard about Payday Loans and most usually this is because they et a lot of bad press. They may feel that they want to avoid using them, although they d not know what they are. It is always wise to find out the facts about something and why it could be risky before you decide to avoid something though.
Payday loans came about when lenders could see that there were no opportunities for those with a poor credit recordto be able to borrow money. They felt that they wanted to therefore set up a lending business where there were no credit checks and therefore it was open to anyone. Due to the high risk of lending to those that have a poor credit record, the costs were set high and the amounts lent were small. Since they started there has been legislation put in place to prevent them from being able to change extreme levels of fees.
Payday loans are usually used by people who need to borrow a few hundred pounds for a few weeks. The loans are normally set up so that there is a direct debit set up on payday so that the amount of the loan can be repaid in full. This amount would be the money that was borrowed plus the interest and charges. They should tell you before you take out the loan how much this will be so it should not be a surprise. If the money is not available when they try to draw it out, then there could be problems. It is likely that charges will be added on to the remaining balance and these can be high. You should be able to find out what these are going to be if you look in the terms and conditions for the account. If you find the terminology too difficult then you could speak to the customer services department and ask them. The idea of setting up the direct debit on payday means that it is expected that you will have the money available to pay off the loan. However, if you have a lot of other money going out too, perhaps to pay other loans or an overdraft or bills, then there may not be enough left to pay the full amount owed.
Many people do not like payday loans because they feel they target the vulnerable. They feel that if people are considered to be too much of a risk for other types of loans then they should not get these either. They think that they should be protected and not able to get loans. However, for those that really need the money, they may find that it is just what they need. They may have an emergency which they need to pay for and find that the loan helps them to be able to do this.
Of course, each individual is different. Some will take the loan because they can and use it for luxuries and not ensure they will have enough money to pay it back and this could get them into trouble. However, others may carefully consider it, only take the amount that they need, get themselves out of trouble and make sure that they have enough money to pay it back so that they do not pay more than necessary. It is therefore difficult to argue generally whether these are a good or bad thing, but it is easy to see that they would be riskier for some people than others.
There are stories of people who were not able to pay back their payday loan and got huge fees and found it very difficult to manage to get it paid off in the end. Some people will get a payday loan form another company to pay the one they have and then find their debt goes up and up. However, there are also people who have used the loans to their advantage and paid them back on time and found that they helped them. The media loves a negative story and so these tend to be highlighted but it is important to know about them and make sure that the same things does not happen to you.
It is always wise to think hard before borrowing; considering whether you really need the money, whether you are prepared to take the risk and if you will have enough to manage the repayments. You should also compare different ways of lending and see which is the cheapest so that you can pick the best type of loan for you. Then it is wise to compare lenders to see which one you want to go with. Price is a big element but there may be other factors, such as customer service, which you could find are important to you as well.