Do payday loans deserve such a bad rap?

So it is Thursday afternoon and I am at my desk wondering what to write about. My friend Robert is in town and we are going out tonight. He’s Scottish and says that he and his friends make use of the dreaded payday loan all the time for things like shopping and going out. I was shocked to say the least. Not just because of the high interest but because he seems like such a normal chap and not the sort to have money problems at all!

So that got me  thinking and I starting researching the subject, with the help of my friend the Internet. Gawd I love the Internet.

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Some UK households in deprived area’s dependent on these loans

UK families and households are becoming more dependent on payday loans than ever before – this is a fact with no room for dispute. Recent figures have confirmed in no uncertain terms that UK homes in record numbers are turning to payday loans as a means by which to occasionally help them meet their day to day expenses, or perhaps pay their mortgage/rent instalment as something of a one-off. Never has it been so easy to take hold of emergency cash in a matter of minutes and put it to use in any number of potentially life-saving ways…financially speaking of course.

However, and as comes as little surprise, critics and consumer groups by the dozen have chosen to interpret the finding of recent studies as something of a sign of a debt-disease eating away at the UK, with the payday lender fronting the charge for complete and total chaos. They argue that payday loans and the lenders behind them encourage irresponsible borrowing and are primary catalysts behind an ongoing UK debt crisis, therefore should in an ideal world be run out of business.

WongaNo small accusation to say the least!

On the flip-side of the argument however, it is important to consider what exactly would be the alternative should the millions in question have chosen not to take out online cash advances. It must be remembered that in the vast majority of these instances, those taking out a loan were doing so to meet a bill payment or perhaps cover their rent, which is not exactly the kind of frivolous spending most would relish the thought of. No, they were covering bills because they HAD to and thus taking out cash loans because they felt they had to.

The alternative option would be to do nothing at all any be unable to pay the bills in question, which it seems it what the consumer groups and critics in question would prefer. Sadly, this would in turn lead to mortgages going into default, utilities being cut off, accounts going overdrawn, enormous penalty fees, interest rate hikes and bewildering credit score damage – all of which could have been avoided with a simple, minor cash loan.

Is the nation’s payday loan dependency a bad thing? Technically yes, as it shows that the UK household is in general struggling to make end meet on a scale like never before. However, to put any of the blame at the door of the payday lender is literally 100% unfair and counter-productive – they are currently helping millions to avoid a world of unpleasant consequences.

So all this had my head in a spin. I had to get some answers from a professional. Luckily for me I had a payday loan expert staying with me for a fortnight so I put Robert to work!

With all the negative news surrounding the loans Robert decided to do a myth Vs fact run-down of how he saw the loans

Myth – Payday Loans are Unnecessarily Expensive

Fact – If and when any given person or authority casts aspersion on the costs of these loans, it can usually be taken for granted that they are referring to the APR. An APR, or Annual Percentage Rate, is the representation of how much the loan or financial product will cost over the course of a full year. As a payday loan is to be repaid and settled within a month, the APR really doesn’t offer a fair indication as to the value for money on offer, which usually amounts to #25 for every #100 borrowed. Given the fact that payday loans can be applied for in seconds and paid out in minutes even for those with poor credit, this cannot reasonably be considered an unfair rate.

Myth – Payday Loans Are Primarily for the Poor and Desperate

Fact – This is actually the 100% reverse of the reality of the situation, as quick loans are designed specifically for the use of those already in a stable financial position and are in no way facing severe problems. Payday loans were introduced to offer a means by which any given person in an otherwise comfortable standing could gain access to small sums of cash in an instant, so as to put right any number of minor wrongs and financial hiccups that have the potential to spiral into far worse scenarios. Short term loans should effectively be avoided at all costs by anyone considered to be anything close to desperate or in deep financial trouble.

Myth – Payday Loans are Only for Emergencies

Fact – The cash a online loan offers can be used for literally any purpose across the board at the discretion of the borrower. As such, while the vast majority will use a loan as a means by which to meet an urgent bill or perhaps carry out a pressing repair, there is nothing to say that these loans cannot be used to fund more pleasant endeavours. From shopping trips to weekends away and even one-off purchases, just as long as the loan is handled sensible and paid back as demanded, there really are no limitations.

Myth – Those Who Struggle to Repay Will Face Severe Penalties

Fact – A borrower will only ever face severe penalties if they fail to let the lender know that there is a problem and thus pass up any chance to reach and agreeable resolution. Lenders do not set out to see their borrowers suffer or struggle, therefore at all times offer advice and various repayment resolutions for those with the common sense to admit they are facing difficulties.

 

Disclaimer

Please note the above myths and facts segment is a payday users opinion and not the opinion held by me! I personally believe they do deserve the bad rap. Do not get a payday loan guys and do not buy Robert a drink if you see him later on, he’s all mine!