Payday loans have been the hype for being one of the easiest forms of short-term loans. Known as salary loan or short term unsecured loan. Not only do payday loans provide easy terms for borrowers for a quick loan but also are facilitating the lenders with the quick repayment on their own terms.
Payday loans also work in favour of the people who do not have their credit history established, or have had the misfortune of a bad credit score in past which limited their borrowing options.
An estimate according to the Financial Conduct Authority states that the United Kingdom has 200 payday lenders out of its 50,000 credit firms. The number is growing with time as the payday industry flourishes in the UK. With each passing year, the number of people from various income groups contributing towards the payday industry making it a strong component of country’s financial backbone. With the large number of authentic payday lenders, it has become a flourishing industry over time.
What is the purpose of payday lenders?
Profit is the first and foremost aim of the payday lenders since the interest rates are higher than any other form of short term borrowing, there are some of the rules the UK payday lenders need to keep into consideration:
- To lend money to people who are in financial need for it and are also able to afford the amount they are borrowing (which brings to breaking the basic myths that payday loans are for the unbanked; by all means payday lenders need bank account information).
- The lenders are supposed to give a clear picture of the total cost of the loan within the due term, to the borrowers so not to keep them in dark.
What are the common myths associated with Payday loans?
1- They Are Super Expensive
One of the very common notions associated with payday loans is that they are too expensive and that affordability is a huge question when one is considering payday loans. Also it is said about payday loans that they have escalating interest rates, whereas in reality the loan itself doesn’t last for a long time and is only for a few weeks time.
The interest rates revolve about 15%, but one of the reasons why this myth might have surfaced for some is because of the short time span of repayment which often becomes difficult for many individuals especially in case of an unexpected expense arising which might require you to delay payments or make arrangements with difficulty. Rolling over the debt could definitely make it look extremely expensive and may generate the idea of being an unaffordable choice for some.
2- The Debt Is A Never Ending Cycle
One of the most common myths associated with payday loans is that there starts a cycle of debt which has no end and it often leads to bankruptcy. The truth is that due to the increased number of roll over chances in various countries and states, people are able to prolong the period of loans, which often leads to relaxation about it. And as a result, the loan period extends with a series of payment defaults etc.
The cycle of debt could be avoided with payments in time and applying for an amount of payday loan in accordance with your own pocket size and the budget so that the repayments are easy and you don’t need more loan to pay off the previous one.
3- Only The Payday Lenders Benefit From The Payday Loans
Payday loans are said to fill the pockets of the payday lenders and it is assumed that those are the only individuals who benefit from the transaction.
The truth is that both the lender and the borrower benefit from the payday loans. The former one gains by getting a loan on an urgent basis, without the time and analysis of one’s credit history and biases against bad credit records. The later wins because of interest earnings of course. Also, since there is no hassle of collateral as there is none for credit check, getting money when required is one huge benefit in itself which the borrower enjoys.
4- A Payday Loan Has To Be The Last Resort
It is often believed that after all the options of borrowing have been exhausted, payday loans should get a chance to be considered. The only legitimate reason that seems to be the backbone of this myth could be the fact that it could be an expensive choice compared to others. However, that surely does not mean one should not make it a priority to consider when thinking of options to borrow money as this one proves to be an easy short term choice.
5- There Is Deliberate Avoidance Of Rules And Regulations
This is such prevalent a myth that it is doubted if ever called one. The truth is, the payday lending is promoted by government and related authorities and receives strong support to keep the functions going. However, the amount of rules and laws concerning the payment schedules and interest etc. are relaxed in comparison to other forms of lending and that is for the payday lenders to stay in business.
The short-term loan on easy terms is the unique selling preposition of the payday loans. The loan process does not dig deep into the credit score and history of the borrowers and provides loan without much of formalities. And for that matter, it is essential for it to have limited number of rules to follow so to stay in business.
The option of payday loans is a very convenient one for the consumers and the growing inclination towards it of people from various income groups, in different times o the year and for various reasons, shows the immense popularity it is gaining. And for one to grab the essence and concept of payday loans, it is important to debunk the myths and learn about it for what it is to avail the benefits of the payday loans.