There are arguments saying that it’s not payday loans that are the problem but poverty. Well, they have a point. It is poverty after all that forces consumers to the brink of financial despair. When your paycheck isn’t enough to cover the month’s bills, you are left with no choice but to borrow on your next month’s paycheck. The cycle continues as your next month’s paycheck is short again and you’ll soon find yourself in a debt trap that is going to be too difficult to get out.
While it’s true that we can always blame poverty for the payday loan troubles we hear from consumers, it’s just one aspect of the entire picture. You can blame poverty all you want but you won’t really go anywhere. Poverty has been society’s malady since the beginning and it’s the kind of problem we can’t eradicate overnight. But what we can do for the now instead is to thoroughly investigate payday loans.
As one of the most controversial financial products today offering short-term and quick fix solutions to your cash problems, payday loans seem like the perfect way out to overdue bills, medical expenses and other personal needs. Payday loans are not only quick and easy to avail but those with bad credit issues are especially welcome to avail the loan.
The financial product is advertised as quick cash which is extremely appealing when you find yourself in a financial rut. Whether you just heard about payday loans or you’ve actually applied for one before, we’ve all heard the pitch. Payday loan advertisements often go like this. Is rent due today yet payday is still a week away? Look no further than payday loans. You’ll get your cash today and repay it on your next paycheck.
With more lenders offering payday loans online 24/7, the financial product is right there on a platter promising you the most convenient way to obtain small and short-term funding. Unfortunately, with convenience comes a very high interest rate that lead to bigger problems.
Let’s say you’re borrowing £200 over a 60-day term to cover this month’s rent. If the interest rate per annum is fixed at 365% and the Representative APR is 1,058%, you’ll end up paying about £299 in total. The interest is almost 50% of the amount you borrowed to think that the term is just 60 days. The £99 worth of interest is already too much as it is but the real danger and problem with payday loans is the fact that it leads to a vicious cycle of debt.
Because next month’s paycheck is already short £299, you won’t have any other choice but to keep renewing your payday loan. You might even want to borrow more to cover the amount that went to the interest. The cycle keeps going on because you have no other source of income at all. As you keep borrowing money, the amount of interest rate also racks up to a point that you may not be able to handle in the end. In most cases, you may even end up filing for bankruptcy because the debt became too much that your paycheck could no longer handle anymore.
There are cases when borrowers are offered an option to extend the term for their payday loans. This option seems like a good idea because it’s going to give you more time to repay the loan. What most people don’t understand, however, is that the interest rate also changes along with the changes of the terms. When you’re ready to pay up, you might find yourself charged with an even higher interest and this problem further contributes to the ever increasing worry about the debt trap. In addition to being charged with excessive interest rates, borrowers of payday loans are left with no other choice but get sucked in by the vicious debt trap.
The only solution to the payday loan problem is to stop borrowing through this form of lending. Even if poverty may get the best of you, never resort to loans with high interest rates as you’re only putting yourself in a very compromising situation. Look for other means of funding. Most of the time, there are always cheaper alternatives than payday loans.