Considering the advantages and disadvantages of payday loans. When is it the right or wrong time to take out a payday loan?
In 2007 the world was hit by the global economic crisis which saw banks collapse and the stock markets plummet. Some of the strongest economies in the world have accumulated so much debt that severe austerity measures have been taken in order to reduce the burden of money owed. This international economic recession did not only hit the governments and financial services industries. Many of those worst affected are those who were less economically well off in the first place and now have bills coming in and mortgages to pay off without the same level of prosperity which they may have had before. It has become increasingly difficult to borrow money from banks even if you have a good credit rating, so where can you go if you have a poor credit history?
The growth of the payday loans industry in different countries across the globe, from the USA and Canada to the UK and Australia reflects the necessity of a source of credit for those whose credit scores are low. The borrowing options for those with bad credit are extremely limited and without options such as payday loans some people may be forced to do business with unregulated loan sharks who can charge what they like.
However, many would argue that payday lenders are not much better than loan sharks. The levels of interest on payday loans can be extremely high and rollover fees for late payments can also be extortionate. Payday lenders have also been accused of preying on those members of society who are most desperate by charging more than people can afford when lending money. Unfortunately, there are extremely high levels of fraud as well as a high percentage of people who default when borrowing payday loans. This means that higher than average levels of interest need to be charged in order to cover the risk which the lender takes on when lending to people with bad credit.
Most companies which lend such as banks and building societies are highly regulated especially when it comes to the way in which they are permitted to lend money. Payday loan companies are not stringently regulated and this is mainly due to the fact that they cannot lend large amounts of money (rarely over $1000). Sadly for those borrowing payday loans any amount of money borrowed is likely to feel like a lot. In order to pay such high levels of interest on a loan you need to be desperate.
There is no doubt that in emergencies there must be options for people to borrow money no matter what their credit rating. However, people should not be encouraged to borrow when they do not need to. Payday loan companies should be more regulated in order to prevent people falling into a spiral of debt which they cannot afford. Borrowers should also be more responsible and only borrow when it is absolutely necessary, keeping the amount borrowed to the absolute minimum and ensuring that debts are repaid on time in order to avoid further financial woes.
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