Payday Loans: A Dagger in the Throat

Uncategorized | Posted by
Dec 08 2013

Sharks are found in open seas. A lot of people think so. Most of us have seen Jaws too. But I think I disagree with this proclamation unanimously accepted by all of the mankind. There are sharks on land. The will eat you raw. They will dissect you and extract even the last drop of your blood. Of course, here by blood, I mean your hard earned money.

A payday loan or a payday advance is a small, short-term unsecured loan, “regardless of whether repayment of loans is linked to a borrower’s payday”. The loans are also sometimes referred to as “cash advances”. Payday advance loans rely on the consumer having previous payroll and employment records.

The basic loan process involves a lender providing a short-term unsecured loan to be repaid at the borrower’s next payday. Typically, some verification of employment or income is involved, although some payday lenders do not verify income or run credit checks, why would they when what they reap is almost 20-30 times what they sow.

In an ideal loan lending scenrio, borrowers visit a payday lending store and secure a small cash loan, with payment due in full at the borrower’s next paycheck. The borrower writes a postdated cheque to the lender in the full amount of the loan plus fees. On the maturity date, the borrower is expected to return to the store to repay the loan in person. If the borrower does not repay the loan in person, the lender may redeem the check. If the account is short on funds to cover the check, the borrower may now face a bounced check fee from their bank in addition to the costs of the loan, and the loan may incur additional fees and/or an increased interest rate as a result of the failure to pay.

Now let’s come to why I was cursing these money lenders in the beginning. Many people who use payday loans are low-to-middle income people with few assets. These individuals are least able to secure normal, lower-interest-rate forms of credit. Since payday lending operations charge higher interest-rates than traditional banks, they have the effect of depleting the assets of low-income communities, thereby filling up their own selfish bellies.

That’s not just it, these predators go to any extent to allure you into their traps. For instance, in May 2008 the debt charity Credit Action made a complaint to the UK Office of Fair Trading OFT that payday lenders were placing advertising on Facebook, which violates advertising regulations. The main complaint was that the rate of interest was either not displayed at all or not displayed prominently enough.

Now fair loans is a company that gives fair loans with low interest and unlike people who cut your throat they are different.

Now is the part that qualifies them to be at par with the sharks I had mentioned. According to the law, a payday lender can use only the same industry standard collection practices used to collect other debts. Payday lenders have, in the past, threatened delinquent borrowers with criminal prosecution for check fraud. This practice is illegal in many jurisdictions and has been denounced by the industry’s trade association.

So where does this all leave you? If you are in dire need of money, and cannot approach a nationalised bank as you don’t have a collateral, what do you do? There are other alternatives. These include pawnbrokers, credit union loans with lower interest and more stringent terms which take longer to gain approval,employee access to earned but unpaid wages,credit payment plans, paycheck cash advances from employers, auto pawn loans, bank overdraft protection, cash advances from credit cards, emergency community assistance plans, small consumer loans, installment loans and direct loans from family or friends.

Also, a minority of mainstream banks lend short-term credit over mobile phone text messaging offer virtual credit advances for customers whose paychecks or other funds are deposited electronically into their accounts. The terms are similar to those of a payday loan; a customer receives a predetermined cash credit available for immediate withdrawal.

So next time, before you take a dive for money, check the water. There may be surprises waiting for you.