A payday loan is the buzz of the lending market. It is known as the fighter aircraft of the financial crisis that provides instant relief. However, some of its features make it notorious too as well as many people are still confused about its concept. Why not take things one by one and have a better understanding of the complete picture.
What is a Payday Loan?
A payday loan is a type of borrowing option that provides the facility to borrow funds based on your salary. You take funds by showing the income, and the amount taken needs to be paid off on the next payday i.e. salary day. However, it can be of several months also or maybe one year, not more than that. It is an instant decision loan, as the 30 seconds after the submission of the application the approval decision comes. Also, the fund disbursement follows that with good speed and the money reaches to the account of the borrower in just 10 minutes.
Why is it So Bad?
This aspect needs a detailed explanation, as many points are required to include in this part. Why wait for more? Start now only.
The unregulated and uncapped APR that goes HIGH
When you apply for a payday loan the APR that you see are – 1,355%, 2,225% and so on. The extremely high rates create only huge pits for the financial lives of the people. The finance news section on the news websites is always brimming with the spoiled finances of the borrower. Their pathetic stories of how the payday lenders are exploiting them in the name of huge sized repayments are always there. With the promise of instant financial help, payday loan brings the curse of a debt that keeps adding to the burden.
It becomes a trap in the name of rollover if you fail to pay on time
Rollover has become a strong trap used by the lenders to strengthen the clutch on the innocent and ignorant borrowers. In the name of giving extra time to pay off the loan, people get into big troubles.
Due to higher rates, sometimes it becomes difficult to pay off the taken money on time. As a result, they apply for rollover, which is also known as deferral but that makes them pay more on the interest rates and fees. The extension in the period increases the total cost of the loan and the feature, which looks like a pleasant gift becomes a realised nightmare.
It creates a bad impression about the financial situation of the borrower
Yes, it is true because it is a fact. People take a payday loan only when they are in extreme crisis of money and no other option is left. It is certainly a big help at that time, however, at the same time, it becomes a regretful decision.
The finance companies consider the person less creditworthy because no one wants to take a high-interest loan if situations are not very poor. This gives the impression that the borrower is of bad financial health and rely on instant sources of help. He/she may not be able to act trustworthy for other financial products like credit cards, loans etc.
Makes it difficult to qualify for other loans
The lenders are always on the alert mode against the loan applicants who are repaying the payday loan. They know that this loan has big instalments. This creates the doubt that the applicant of their loan may not be able to pay the funds at the right time.
As a result, it can create a big problem for those who apply for a loan that serves in a particular situation. For instance – the unemployed loans with same day payout facility are out of reach for applicants who are in debt due to a payday loan. Due to this, it can be really difficult for anyone to face and fight financial chaos. Thanks to the notorious image of the payday loan that tags people as financially incompetent.
So what is the solution? May be alternative loans
If one thing is clear that payday loans are creating a mess and they are bad then what is the solution? It is not wise to keep wasting time in the criticising things, the progressive approach is to think about an action plan. As the precise solution, some loan choices present their potential to replace payday loans in utility as well as importance.
No guarantor loans
Many lending companies offer loan products that can compete with the payday loan. The no guarantor loans are among them. They are short-term in nature and you can borrow a small amount. The procedures are simple and speedy and 100% paperless. The best part is that they are available for the poor credit scorers too through the very bad credit loans with no guarantor and no broker from loan lender in the UK. Get money without any obligation despite bad credit is certainly a big help. With timely repayments, you can improve the credit score as the deals are customised. It is not difficult to find the lenders of these loans online – new horizons, A One Finance etc. are some of the known examples.
The short-term loans with same day payout
The actual strength of the payday loans is in their ability to provide funds on the same day. But there are other competitors in the market that perform the same function at a much lower cost. From personal loans to all other short-term loans that serve to certain situations can get on the list in this concern. You may get stunned but the unemployed too can get this privilege through unemployed loans with same day payout feature. Don’t you believe that? Then search online and find them in abundance.
The above reasons should suffice to make you realise the actual causes that make people ask why a payday loan is so bad. Now when you are aware of the prime reasons, it is better to stay away from it and do not borrow until the need is not very urgent. A payday loan is an evil in the disguise of a friend. Information is the best tool to avoid such threatening financial products. Stay informed and play safely in your finances. Besides, you have other options too.