Short term loans have been in vogue for some time now. These loans refer to loans that are taken for short periods like a few days, weeks, months or even a year or more. And payday loans are a special type of short term loan which are given to cash strapped people wanting just a little help to tide over the tough times till the pay check comes in. While it may sound like living beyond ones means, there are times wherein these loans actually help to save the day. They are given out at an interest and are easy to get since they are loans without guarantor.
One thing which can actually affect the financial health of a loan seeker is the fact that there are no caps on the interest charged for these loans. Typically speaking a 1000pound loan might cost the borrower an additional 25pounds more per month. Of course one cannot forget the fact that these are high-risk loans for the lender who gives out payday loans with no guarantor or credit check. This effectively means that he has equal chances of both realising and loosing the loans. While a bad credit can result in the financial health of the creditor taking a hit, proper realisation of the payday loan can also result in a huge profit for the creditor. It is generally seen that people taking payday loans have a propensity for availing the same on a regular basis thereby ensuring good financial returns for the creditor on the whole.
For the borrower the need for these loans without guarantor can range for an emergency medical condition to a cash crunch or the need to buy something or go on a holiday etc. Whatever the circumstance, for the payday loan to be considered as a healthy option, the reason has to justify the need for the same. It goes without saying that payday loans come with a lot of advantages like:
· Payment flexibility which can even lead to a roll over of the loan taken in case of instances of non-payment,
· The TAT is of about 24hours since the application process is absolutely easy and hassle free and the disbursement too does not take much time and
· These loans bypass the credit checking process traditionally applied to any loan applied for.
These loans with no guarantor or credit check can also sound the death knoll for the financial health of the borrower if he is not able to pay back the payday loan on time. Options which are available to the lender for the realisation of a seemingly bad loan are:
· Roll over the loan by charging a hefty fee for this delay in payment or
· Automatically debit the loan and interest amount from the bank account of the borrower by taking help of the Continuous Payment Authority.
Both instances can result in a deterioration of the financial health of the borrower and hence payday loans should only be taken if there is a clear way out of it. It would not be wrong to say that these payday debt traps have a direct impact on the wellbeing and the health of both the borrowers and their families. In fact there are times when the annual interest rate of payday loans can be almost 10 times more than those charged by credit card companies. This makes credit cards a healthier financial option since:
· They too enable flexible borrowing,
· There is no need to pay a huge interest amount,
· There is ample flexibility in the pay back schedule and
· They are suitable both for short term and long term borrowing.
Money lenders disbursing these loans with no guarantor or credit check are actually financial sharks, many of whom tend to roll over the payday loan when it crosses its schedule payment date without even talking it out with the borrower. Consequently, one fine day the borrower find himself having to pay back an amount which is far in excess of what he actually took as a payday loan. Since these are loans without guarantor, there is no one to vouch for the authenticity for the same making it inevitable for the borrower to fall into a debt trap.
That payday loans are actually very bad for both the financial and physical health of a borrower is a known fact. Yet many people especially minority communities’ find it to be the only solution in times of great need. While they do help to tide over needs, wants and circumstances requiring financial aid, the path to payback the same should be easy and straight and time limited.