Beware Payday loans are booby traps
Many families are in a financial mess because; they are victims of small installments loans, mostly the payday loans. Although the amount borrowed may not be huge, and it doesn’t require collaterals or referees, it is, therefore, not a surprise to see many people, struggling to break out of the loop created by the loan.
Consumers use the payday loans to pay outstanding bills, evade evictions, to prevent utility disconnection, avoid their vehicles repossessed, and other basic needs to keep home running. However, on careful observation, consumers tend to pay more in interest than the actual value of the credit taken. That’s why, the consumer tends to be in a vicious cycle of borrowing, in order to meet their needs.
It is not hard to understand why borrowers find it difficult to repay their payday loans, it’s because of its stringent terms, and high interest rates that, keeps them in a vicious cycle of debt, which seems like eternity to break, though turning a supposed short-term loan, to a long -term, frustrating payments, with outrageous interest rates.
Payday borrowing is a common trend in America, and it is estimated, over 12 million Americans used the payday loans at least eight times every year. The payday loans slavery is a reality and it is eating deep into people’s finances.
The story is the same in the UK, where many low earning families are plunged into the perpetual, hardship of paying high-interest loans to keep their families running. Over 4.5 million people in the UK are working temporary or zero hours contracts, which make then insecure and vulnerable financially. This category of low paid workers is the target of payday lenders in the UK, although the loan may look simple at initial stage, borrowers may find themselves in a payment cycle, when they default on loans and they will need to take another loan with the additional burden, therefore, the payday loan, becomes a troublesome burden.
From research conducted on payday loans, borrowers mostly end up paying more interest than the actual loans. A situation that may put the borrower in a perpetual borrowing cycle, affect the upkeep of the family, and lead to frustration in the long term.
A Payday loan: a vicious debt cycle
Payday loans are credit facilities that allow people to borrow a small amount, like 350 pound, or lower and permit them to pay back on the new payday, usually two weeks with an interest. Although is a quick fix to some nasty problems, like settling utility bills, avoid eviction, and repossess vehicles, but the cost implication makes it modern day slavery.
The problem associated with the payday loan is that the borrower pays more in interest and fees than the actual amount borrowed. The loan is designed for a quick fix of domestic matters, many borrowers end up rolling it over before the year-ends, which will accumulate to exorbitant interest.
A careful look at it shows that, the lender is exploiting borrowers, most borrowers are low earning workers, who may not have the facility to take the regular loan from banks, or they need a quick solution to certain problems, at the end of the process, lenders feed on their low income, while borrowers are struggling for survival.
Figures associated with the booby trap
Most borrowers are not aware of the massive load, payday loans put on them, but a look at the figures will send fears through the spines of the fearless.
This is how it works in reality, the process is simple; the lender gives $350 loan at an interest rate of 15%, a close look at this presents, a fact that the two weeks loan is actually provided annually at 390% interest! A good business to the lender and a killing adventure to the borrower, no doubt.
Let’s take it a bit lower, with just eight times rollover, if the borrowed amount is $325 for the eight times combined, the borrower will pay $468 in interest, and to pay the principal and interest, the borrower must cough out $793, a staggering figure, by all financial standards.
The problem with the payday loan is that the borrower rollover the loan fortnightly, these rollovers account for about 75% of the payday volume, and on the average, a borrower is in the vicious cycle for at least 212 days every year.
With the scary figures, no wonder payday loans borrowers are likely, to file for bankruptcy than other low-income people. This is the problem because of 80% of borrowers, roll over the loans several times and it leads to financial crises.
Even in the military, payday loans are getting on the nerves of troops, where it is also, associated with low morale among the soldiers. Like those in other sectors, uniform people take the loans for quick fixes, but it never solves a problem in the end.
Payday Loans Puts your health at Risk
According to a new report, 38% of people that use payday loans and other high interest, short-term loans, are likely to rate their health status poor. This is the health effect of high interest paying loans.
High-interest, short-term loans are turning out to be predatory in nature, when the borrower rolls over the facility, several times, with interest accumulating at skyrocket values. Because of this, payday loans are regarded as the unhealthiest form of a loan with a severe impact on mental wellbeing.
The truth is the debt cycle of a loan, which supposed to be short term, however, if it is rolling over, spanning months will definitely have psychological trauma on borrowers, who are mostly, low-income earners and are only searching for a quick solution to their financial problem. Therefore, such people may not pay attention to the interest rate on the quick loan available, before taking it.
Since lenders are profit-oriented, as long as their loans are secured, they are always willing to roll over the facility borrowers, which will plunge them into further debts and crazy interests, when the loans are finally settled after several weeks of rolling it over.
Payday lenders have their offices everywhere, which make them closer than McDonald stores, but with all the figures available, it is obvious, taking a payday loan will only impoverished the borrower the more. A payday loan may be a quick fix, but a long-term problem that may take more than half of the year to solve.
