While it is true that banks have come in for a reasonable amount of criticism in the past few years, this pales into insignificance when compared to the amount of harsh criticism piled onto a payday loan company. Many people and organisations consider the payday loan companies to be nothing more than bottom feeders, taking advantage of the most desperate borrowers. This is something of a misguided perception, however.
There is no doubt that short term loan companies have received a bad reputation, but this has hardly been warranted. They do often have high interest rates, and they make no secret of admitting as much. If the difference between the interest rates for a payday loan company sand those charged by the banks for overdrafts are compared, however, it is the banks who take the highest percentage of interest from consumers.
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When looking into interest rates, it would be foolish to overlook credit cards. These are another example of truly exorbitant fees, but very few people take notice of the fact that along with high interest rates, a credit card will often have an annual fee, and will charge people for using them to take out cash. Neither of which is true of a short term loan company. Added to which, applying for a credit card is a long and drawn out process, which can be completely impractical in the case of a sudden financial emergency. In comparison, a payday loan can be approved and the money transferred to your bank account within 24 hours.
Of course there are some people who get into difficulties as a result of being unable to repay the loans they have taken out, but the same can be said for absolutely any form of loan. Consumers who have spent too much shopping online default on mortgages, credit cards, and personal loans all the time, and yet few people would blame the banks for these oversights. Why then put the blame on the short term loan companies for their consumers' oversights?
A lot of that negativity seems to stem from the short term nature of the short term loan itself. Because they are charged on a daily or monthly basis, the charges and added interest can spiral out of control within a very short space of time, making the loan increasingly difficult for the consumer to repay. To help to combat this, the reputable payday loan companies have very clear terms and conditions, and do what they can to ensure that new and returning borrowers are 100% aware of what they are agreeing to before any loan is given.
It is important to recognize the fact that the short term loan has both benefits and disadvantages that those who take it out must face. While it's unwise to outright condemn the concept due to high interest rates and unscrupulous lenders, one must at the same time recognize the dangers inherent in the payday loan. Many people know that short term loans are somewhat dangerous in the fact that they can lead borrowers into an inescapable cycle of debt. There are some general rules that can be followed to ensure that payday loans don't get out of hand, such as the following:
Don't take out more than one payday loan.Always attempt to find another option for finding financial assistance other than a payday loan before taking out a loan.Be aware of your interest rate and understand how much money you will have to pay back for your loan.Make sure that you pay back your loan promptly to avoid additional charges.
So, with banks unwilling or unable to help millions of people worldwide, are short term loans companies really all that bad when they allow people to avoid missing payments on existing debts and the resulting problems that can cause?
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