Why Are Payday Loans So Controversial
This is a special type of loan considered as an emergency loan when you need to buy something the last few days before your payday. Loan companies provide you with a loan that must be returned in a short period of time when you receive your salary.
These loans are smaller than others, and you can take up to $1,000. However, this solely depends on the lender's philosophy. Sometimes, they restrict the size of first loans. The period you have to return them varies between few days and a couple of months. Again, it depends on the company’s policy. The main disadvantage is that the interest rate is charged daily and there are a couple of fees you have to pay to set it up.
As long as you pay the company at first possibility, this loan is going to cost you less from a lender than from a bank. For example, a $90 credit will have around $7-10 interest rate. However, these loans can easily grow if you miss a repayment or decide to extend the period.
Being unable to repay the lender can cause you big troubles. After the interest rate accumulates and the company is unable to withdraw the amount from your card, you will be charged and extra $20 for being late. However, the more you extend, the more you have to pay at the end. If you have taken a $200 loan and you are unable to pay it for two months, at the end of that period you will have to pay between $150-200 more.
What makes them controversial?
Many people believe that lenders are targeting individuals who are vulnerable without doing any affordability checks. The costs accumulated are not always transparent, and they often encourage people to borrow money.
According to the Office of Fair Trading, there’s evidence that lenders breach the law. Other institutions claim that 9 out of 10 lenders don’t check whether the borrower can return the money back. Seven out ten borrowers were put under pressure to extend the amount, and more than 84% were not offered to freeze the interest rate when they have financial problems.
This type of loan often deceives the consumer to extend his loan period due to the significant interest rate and short repayment term. According to the statistics, everyone who takes this credit once is prone to consider it at least a few more times a year.
Online Payday Lending
Online payday loans will give you an advantage because they can protect you from frauds. Individuals apply by completing application forms, and the money is deposit straight to their account. After the period is over, the company withdraws the owned money straight from the consumer’s bank account.