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Why payday loans are not dangerous

Why payday loans are not dangerous
Written by Publishing Team

Business Finance
(© fizkes – stock.adobe.com)

Payday loans make poor people feel better. Therefore, in developed countries, the government does not restrict the lenders through regulation and offers social programs to the borrowers.

loans to the poor

Low income citizens are not interested in banks due to low income or bad credit history. Therefore, they take short online payday loans from non-bank institutions with an interest that notorious money lenders could have dreamed of in the past. We are talking, in particular, about such developed countries as the USA, Great Britain, Australia and Canada, where interest rates on loans from major banks have been very low over the past decade.

The advantage of Payday Loans is the short term of one day to a month, small volume, high interest rates, ranging from 1.5 to 2% per day. For example, in the UK they got the official name of high-value short-term loans HCSTC, in Australia – loan contracts for small amounts of SACCs. Recipients of these loans often underestimate their costs and overestimate their financial capabilities. With the onset of the payday, they are forced to renew the payday loan, especially the one at MoneyZap.com, or take out a new one. Thus, they fall into a vicious cycle of debt dependence.

How do you quench the greed of lenders?

Regulators in some countries have realized that it is time to protect neglectful borrowers of online payday loans:

  • Australia: Parliamentary legislation to ban loan contracts for up to 15 days in 2012. In 2015, the Australian Securities and Investments Commission (ASIC), after reviewing documents from 13 lenders, concluded that loan contracts had been entered into with those who could not afford them. Subsequently, the ASIC prohibited the charging of fees for the repayment of payday loans;
  • United Kingdom: The Financial Conduct Authority (FCA) in 2014 introduced limits on the cost of short-term loans (loan fees cannot exceed 100% of their value);
  • USA: The Consumer Financial Protection Bureau (CFPB) proposed new rules for online payday loan providers in 2016 although in February 2019 there was an initiative to scrap them. The bureau obligated lenders to check the borrowers’ income and ensure that they have enough to repay the loan and live on. They also banned the issuance of payday loans to those who already had many outstanding debts. These measures cooled short-term lending in the countries that offered them and prompted lenders to offer online payday loans to look at less regulated markets.

Why Should You Trust Online Payday Loans?

However, despite the restrictions and active media campaigns, online payday loans are still very popular. Commenting on HCSTC market trends, the British FCA noted that more than 5.4 million loans were issued from August 2017 to July 2018. Meanwhile, borrowers had to pay an average of 1.65 times more than they received. Therefore, the regulator decided to keep the cap on the price until at least 2020. The terms and conditions of online payday loans emphasize the reliability and confidentiality of borrowers who deal with verified MFIs.

Should I expedite the debt repayment?

This is definitely not worth doing. Although debt growth is restricted by law, the consequences of non-payment will remain. Here’s what could be fraught with:

bad credit history

Information about small loans is transmitted to the credit bureau. If you do not return the money on time, this will be reflected in it. Thus, you will not be able to get loans from banks at a low interest rate. At least 10 years after debt repayment until data is archived.

Meet the preparers

An MFI may attempt to collect debts through the courts. If the decision is made in her favour, the bailiffs will stop the accounts, describe the property and sell it. Moreover, you will not be able to travel abroad.

Communicate with collectors

MFIs use the services of fundraisers so actively that debtors of online payday loans are protected from intrusive calls and visits by a special law.

Collectors are allowed to:

  • Communication with the debtor with his consent;
  • debt reminders and talk about the consequences of non-payment;
  • do not call the debtor more than once a day, twice a week, eight times a month;
  • Personal meeting no more than once a week.

In fact, the requirements of the law are not always respected. Collectors often terrorize debtors and their loved ones.

When do you pay off loans online?

Can a payday loan ever be repaid if the effective interest rate is high? It can but under certain conditions. First of all, as a new customer, you can choose between interest-free loans. Second, it’s best to be associated with a company that has attractive loyalty programs as perpetual: they reward interest-free loans, discounts, or rank among the cheapest lenders.

The most profitable are interest-free payday loans when the customer does not bear any expenses. But the condition for using inventory is to pay off debts in time. Otherwise, it is not enough to charge a standard fee in addition to fines and costs. Before getting a payday loan online, be sure of how secure it is.

Payday Loans: Pros and Cons – Why is it safe to take them online?

In the financial market, you can find cheap payday loans online and expensive loans whose cost fluctuates within the maximum limits. It is worth using comparison sites that facilitate making the right choice. A payday loan will not be profitable if it is taken out to pay off a previous loan. The best solution is to look for savings, extra work or loan consolidation. Instant payday loans may be cheaper than bank loans offered. However, it is always worth remembering that this is always a short-term loan.

In general, the idea of ​​online payday loans is not that bad. This is the way out for those who urgently need money and are ready to quickly return it. For example, you need expensive medicine but your salary does not exceed two days. Take online payday loans and give them back the day after tomorrow. Overpayments are moderate even with higher interest rates.

Microcredit is just a consequence that depends on how you use it. Problems begin when microcredit is misused. Common situations are:

  • A person has nothing to pay for the mortgage and takes a small loan to transfer this money to the bank. As a result, the borrower will then have to pay both the mortgage and the microloan. The chances of the borrower getting the funds necessary for both contributions are sharply reduced. The person will not have enough money to pay two payments next month. A person will choose whether to deposit money for the apartment so as not to lose it or take it to the MFI. Whatever decision the borrower makes, the situation is already spiraling out of control.
  • The person needs a large amount, but the banks refuse the request. One takes a loan from an MFI regardless of the actual cost of the loan.

As a result, microcredit debt grows and becomes difficult at first and then becomes impossible. One of the main reasons for this situation is the poor financial knowledge of the population.

The Frank Glimstone Story. Frank is a graduate of the MSc Economics program. He wrote many articles about personal money and wealth. Serving as principal author of MoneyZap, he now connects with clients across the country, helping them achieve their financial and life goals.

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