Payday Loans are considered to be a fast and easy solution to meet the piercing needs which have erupted suddenly, and the person is unable to ask for money from family or friends. This business of payday loans started in its infant stage in 1990 but grew from 200 outlets in U.S.A to almost 22,000 at the present time. The truth about payday loans is that lenders offering these loans are small, unregulated institutions. They do not even check the credit score of the borrower. They, therefore, offer the loans with high borrowing costs and additional handling fees.
Mostly, poor or middle class families apply for payday loans as they have cash management problems. Payday loans usually increase these problems due to its high interest rates and therefore borrowers are unable to repay them as they become due. Therefore, they try to extend the repayment period resulting in increasing or doubling the cost of the loan. Some borrowers, though repay their loan with interest rates, but after sometime are stuck up with another problem and to condition their financial position, take another loan. Continuous extensions of loan repayment or taking another loan leads to rapid increase in interest rates, thus driving them into a debt cycle.
The payday loans are granted within 24 hours of applying and therefore called as instant payday loans, but actually they are a method to make borrowers an easy and immediate prey of the lenders. Though, these loans can be availed for longer period or have the facility of rolling over, but the law of some countries limits the rolling over up to three and the additional charges are increased after every rolling over. The borrower should always listen carefully and understand the inner hidden meanings of lender’s sugar-coated talks. They should clearly analyze each terms and conditions in the agreement before availing payday loans. Also, they should prefer to use credit cards to get cash instead of taking payday loans.
