What are Payday Loans ? : What You Need to Know About PayDay Loans
What Are Payday Loans?
In the flourishing world of borrowing money, one of the most controversial loans on the market are pay dayloans, or advanced cash payday loans. Demonized by the more established lenders and used by those who primarily do not have access to other means of borrowing, payday loans fill a gap. They come with a rather seedy image but are gradually becoming more main stream. They are useful to many and should come with a health warning for others.
Payday loans began in poorer neighborhoods and were found in neon lit shops which provided cash advances in return for a post dated cheque.
Do You Meet the Criteria for Payday Loans?
Almost anyone can meet the criteria for a pay day loan as long as they have a current checking account and a regular fixed monthly income. The benefit of payday loans is that they are not determined by credit score and can be obtained by those with bad credit or no credit history. They are also incredibly fast to organize unlike loans obtained from more traditional lenders. An instant decision can be given.
Payday Loans Are Short Term Loans
Payday loans are short term loans which are given to those who qualify, for a fee. The loan is to be repaid by a set date, usually the next pay day. They are ideally used by those who need a quick emergency loan for something essential such as a vehicle repair, or to prevent a utility being disconnected.
There are no hidden charges and the borrower knows up front how much the loan will cost. Much criticism is made of the way in which the fees are levied at high rates, and how the use of payday loans can lead to a spiral of debt. The same is true of any kind of credit or loan which is misused though.
What Are Payday Loan Companies?
There is no longer any need to call into a payday loan shop to obtain a loan as they are available on the internet. Careful shopping around on line can lead the borrower to introductory offers on payday loans with no fees, or reduced fees, so it pays to shop around. Once the loan is agreed the funds will be deposited in the applicant’s bank account and then withdrawn, together with the fee, on the agreed date. As the sensible borrower uses them only occasionally for an emergency situation they can be actually be a low cost way of borrowing.
Best Payday Loan Companies in the UK
The Debt Trap of Payday Loan Companies
Naturally the borrower who uses pay day loans for a night on the town and then takes another payday loan to pay off the first loan will fall into the debt trap, but this simply mirrors the way in which pawn shops were often used before loans were available to a large sector of the population.
How to Get Out of Debt with Payday Loans
Once again consumer advocates call for the abolition of payday loans, citing the financial misery they cause to those trapped in the cycle of pay day loan debt. However, those who are juggling several pay day loans and become caught up in a trap have used the loans irresponsibly and are not the victims that their advocates would have us believe. What they must do is stand up and address the problem head on before it spirals completely out of control.
Are Payday Loans Regulated?
The facts are that pa day loans are now, for the most part, regulated. They are intended to be taken out as an emergency source of funding, but all too often the borrower fails to meet the agreed payment on time and thus runs up further fees allowing the amount owed to escalate. In some cases the problem is simply compounded as the borrower takes out a new pay day loan to pay the first one, and ultimately ends up spending more on loan fee repayments than on addressing the principal loan which never seems to reduce.
Agreed Payment Plan
The first way to tackle this debt is to speak to the lender directly and see if you can come to an agreed repayment plan. Explain the situation you have put yourself in and see if the lender will agree to a payment plan to allow repayments to go towards reducing the principal, with interest frozen. Do not make the situation worse by taking out another payday loan.
If the interest is escalating out of control then take any measures you can to raise the funds to simply clear the full debt, as the longer the debt continues to accrue interest the more impossible it is going to become. As those who generally resort to pay day loans do not have credit facilities available to them there is no likely opportunity of utilizing credit to pay off the loans.
Having a current account is often a requirement of taking a payday loan. If you have a current account, it is worth approaching the bank and raising the possibility of a debt consolidation loan. You should be honest about the situation and only borrow as much as you need to repay the debt, and then stick to the repayment terms of the consolidation loan if you are able to obtain one. This is only a sensible option if you have the will power not to immediately fall back into the same cycle again.
Help From Your Employer
Another option is to ask for help from your employer. Your employer may be willing to advance the funds to clear the debt off and then deduct a set amount from your weekly wages until the wage advance is repaid. Once again though this will only be effective if you can stay away from pay day loans in the interim, and indeed for good. The problem for many when his happens is that living from pay day loan to pay day loan has become a way of life, and it is easier to take an easy borrowing route than to simply cut right back and do without until finances are better under control.
The Payday Loan Debt Cycle
This type of debt cycle is always going to be a reality for those who have few financial choices and are woefully uneducated about the financial products they use. Ultimately the most likely scenario is that as soon as the payday loan debt has been addressed and cleared the borrower will already be indebted again to a new lender of similar ilk. If you are in this position all you can do is learn from your mistakes and try to be the statistic which breaks the cycle and settle into living within your means.