» The History of PayDay Loans
Ask Google, check on forums or even bring up the topic of payday loans with a friend the result would never vary: a controversial list of pros and cons… what is it that makes payday loans such a controversial issue? What is it that renders it so liked or disliked? What is the contentious story that attracts so much debate? You probably know a fraction of the argument and might have already developed your opinion based on that knowledge but here is an article to enlighten you with the whole story and to help you calculate your options while opting for a payday loan.
Payday loans are a not so recent method that the corporate world has come up with to cater to the borrowers in dire need of financial assistance. Devised to provide for urgent, one time emergencies these loans are set off at high interest rates and are emphatically short term. Although these loans are not specifically targeted for low income groups but their market greatly comprises of people earning more or less $10,000 a year. The amount of money borrowed hardly ever surpasses $500 with a sky-scraping APR that could go as high as 570%.
Payday loans face most pointed fingers at their tremendously bulky APR. These APRs have been declared by customer advocates as “abusively” high and are frequently subjected to criticism. It is argued that these loans lead borrowers to bankruptcy. However the lenders assert that in due to the fact that the loans are sanctioned to borrowers with bad credit and poor income the loan endorses the risk of investment and high APRs provide for strongly anticipated losses.
Another feature of payday loans that encounters constant disapproval is their tendency of having the consumer stacked up in loan extension or rollover. This is a very likely possibility as the low income groups may not be able to repay the full amount of the loan in one go by the due date; eventually leading the consumers into inevitable bankruptcy. Even efforts are being made to outlaw rollovers as they elongate consumers’ jeopardy and the high fees leave the borrowers with no other option but to roll over.
The lenders are also accused of targeting low income groups and locating their setups in poor vicinities so as to attract more financially unstable customers that are frequently faced with emergency money shortages; customers that in turn prove more vulnerable to rollovers.
The lenders waive off all accusations by emphasizing that the borrowers approach banks only when it’s a financial emergency and they have an instant need for money. When all other institutions fail to help them due to bad credit or inappropriate or even an unavailable credit report, the payday loan surfaces as the instant resort. The borrowers calibrate their options and only then sign up for a liability this big. The lenders justify their policies by arguing that the loans save the desperate borrowers from falling into the hands of loan sharks.
If payday loans are manipulating people or helping them out in hard time is for you to decide but the bottom line is that all clauses and conditions for the loan must be clearly interpreted and all consequences carefully considered before taking a measure such as this. See also, payday loans.