Payday loans have had a great deal of bad press in the last few years. Scare stories abound of unfortunate cases where vulnerable people have taken out payday loans and ended up unable to make the repayments, eventually falling into terrible debt. But although payday loans are not for everyone, are there any circumstances where they are useful to those in need?
Why Would I Need a Payday Loan?
When Mr and Mrs Average need a bit extra to pay for a fancy holiday or new car, they can either put the expense on a credit card and pay it off a few months later, or nip down the high street and apply for an unsecured personal loan from their bank or building society. This suits them just fine because they have a good credit rating and lenders are falling over themselves to throw money at them.
When Lending Options are Limited
Sadly the situation is very different for a large number of other people. Not everyone is able to apply for personal loans and credit cards. Some don’t earn enough to be eligible for credit offered by high street lenders now that the lending rules have been tightened, and others have bad credit thanks to poor borrowing habits in the past. So when these people need a bit extra to pay for unexpected expenses, they have far fewer options to choose from, which is when payday loans can be very useful.
How is a Payday Loan Different from a Personal Loan?
Payday loans are designed to be a short-term loan and money is typically borrowed for one month or less.
You decide how much money you need and how long you need it for and the interest is calculated accordingly, so you know exactly how much you need to pay right from the start of the loan agreement. Even people with poor credit ratings are eligible for a payday loan. The online application procedure is very simple and most people will be given a decision within a few minutes.
Why do Payday Loans Have Such a Terrible Reputation?
Payday loans are very useful for people who need a bit of extra cash but have no way of borrowing the money from any other source. As long as the loan is paid back on time, no further interest will be accrued and life goes on as normal. Unfortunately, some people choose to borrow more than they can afford to pay back and end up owing significant amounts of interest, which is compounded by further fees for late payments.
Are There Unscrupulous Payday Loans Companies Out There?
Thanks to the current economic recession, the payday loans business is booming and more than a few disreputable types are cashing in. Sadly, this is not good news for the unwary borrower as some of the smaller lenders are little more than glorified loan sharks in sheep’s clothing. It is always better to stick to the well-known payday loan companies. However, before you decide to take out a payday loan, do a due-diligence check and research the credentials of the payday loan company you are considering using to make sure that they have a good reputation.
What Type of Person Should Not Borrow Money from a Payday Loan Company?
Getting into debt is no laughing matter and once you find yourself in a perilous situation whereby you are struggling to meet the repayments on several loans and credit cards, and you have no cash to pay for the basics such as rent, food and heat, a payday loan is really not the answer. So if this sounds like your current financial situation, you need to seek debt management advice immediately before things escalate.
So, Do Payday Loans Really Deserve their Bad Reputation?
It is fair to say that some payday loans companies probably do deserve their bad reputation, but not all should be tarred with the same sticky brush. There are plenty of reputable payday loan companies out there and
as long as you borrow responsibly, you should have no problems whatsoever.
And with banks typically charging around $35 per day for an unauthorized overdraft, you may even find that a payday loan is much cheaper than overdraft fees!