Paydays are the most eagerly looked forward to days in the entire month. It's the day our coffers fill up and a general sense of wellbeing pervades the atmosphere. The long awaited personal gift can be bought, dinner at the fancy restaurant is a possibility and some wise folks even add up to their savings faithfully at the end of that day.
There are however quite many people for whom the joy of the payday lasts no more than a few seconds. These would generally be those who have payday loans to repay. Even before they can feel the money, it's gone!
What is a payday loan and why exactly is it so monstrous? A payday loan is a loan of small amounts taken with an acknowledgement to pay back the same when the next earliest paycheck is received. The loans are usually for small amounts not more than $1000. These loans are easy to obtain, as the lenders do not require a credit check or collateral.
Such loans are also seen as emergency money that may be required by anyone at any time and such that can't be covered by existing funds or due to inaccessibility of the same.
For example, a breakdown of the heating system in winter requires immediate attention. If you do not have the immediate funds you take a payday loan to have the same rectified.
There are however certain problems related to such loans that many overlook.
One of the most important problems is the high rate of interest that is charged on such loans. It comes across as grossly unfair when you compare the rates with those of the other loans and discover that the annual percentage rate (APR) of a normal loan would be 7% while that of a payday loan averages 400% and even higher.
Then there are also charges applicable for the service. For example, on a loan of $100 you may have to pay $20 thereby bringing the total payable on payday to $120.
Moreover if you fail to settle the amount on payday you can roll over the same but for which you will be charged the applicable rate of interest. You may also be charged fees for your inability to settle the same on the due date.
As these loans are usually taken for short periods, about 14 days approximately this means that any rollovers claim increasing rates of interest. The borrower then gets into a never-ending credit cycle that is very hard to break.
If a payday loan is taken from unlicensed or unregulated lenders it only makes the matter worse. Moreover if you have not received the terms and conditions of the loan in writing prior to commencement, then it becomes even more difficult to assimilate the total charges due. This can only cause more confusion and problems for the borrower.
At the end of the day you realize that these payday loans, so alluringly called cash loans are nothing but monsters that can never be satisfied.
Copyright (c) 2006 Ranci Endo (UK) Investments
