If you put 'payday
loans' into Google, as well as getting lenders you will see news articles and
maybe even a blog or website entry that is heavily critical of these types of
loans. But if you also look at the websites of many of the payday loan providers
themselves then you will see that most of them have statements on how they will
act responsibly when considering applications.
A lot of criticism
that is levelled at payday loans relates to the very high APR that legally has
to be displayed. Some of these APR figures look truly frightening; over 2000%
is not uncommon. But the problem with these numbers is that they completely
fail to give a true picture of what you would actually pay for borrowing money
this way.
Compare a typical £500
pay day loan with the same amount borrowed with a personal unsecured loan.
Typical unsecured loan APR rates look much lower than the pay day loan rate,
but when you consider that the pay day loan will cost around £125 to borrow -
making a total of £625 to be repaid - and the personal loan over a minimum six
month term would cost a total of £721* then the comparison doesn't start to
look so bad.
Using a credit card to
buy something for £500 is obviously going to work out cheaper so long as you
can pay it off fairly quickly, but if you need cash in your bank account then
the fees associated with using these can work out to be fairly expensive. The
great thing about payday loans is that they can help to instill discipline in
your finances. Research has shown that most people do not tend to pay off their
credit cards bills in full every month even if it is a manageable amount. Debts
like these can easily mount up, eventually becoming absorbed into a debt
consolidation loan. The effect is that this debt never actually goes away it simply
gets moved from one place to another within a person's personal finances.
Because a payday loan
is required to be repaid in full on the required date this means that a
customer is not getting themselves into further difficulties. The debt is paid
off, not mounting up the interest somewhere.
The best payday loan
lenders act responsibly when considering a customer's application for funds.
First of all they insist that a customer is employed and receiving a regular
wage, unlike personal loans or credit card companies who will accept you if you
are self employed and perhaps at that moment in time not earning anything.
Payday loan lenders will check very carefully a customer's ability to repay the
amount being borrowed, which protects both parties.
It is all too easy to
run up debts of thousands of pounds with a personal loan or credit card. Many
payday loan lenders will start a new customer off with a maximum of £200. Once
they have proved that they are able to pay this back then they will be allowed
to borrow more, but always based on their ability to repay. This helps to
ensure that a customer is not borrowing beyond their means.
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