The Payday Loan Myths: Are They as Bad as We Think?

Payday loans have received plenty of bad publicity in recent times. They have gained a reputation for preying on the people who cannot obtain credit elsewhere and for lending with sky-high rates of interest. Yet four times as many people use payday loans today than they did in 2006.

The perception of payday loans

They trap people in debt

Payday loans are meant to be used in the short term to meet an unexpected bill or expense that your wages cannot quite cover. It might seem like a quick and easy solution to your financial problems in that moment, but the fact that you have a short time in which to repay the loan plus the high-interest rates can mean that if you miss payments, you can end up paying charges or taking out another loan to repay that loan and you end up in a spiral of debt. Research shows that the average payday loan borrower takes out 8 payday loans in a row because they cannot afford repayment of fees and mounting interest.

However, it is also true that payday loans can help when money is needed for something urgent and if they are used responsibly. The application process is easier and the loans are not secured against your property like a bank loan might be.

Payday loans lenders have a bad reputation

We have all heard of ‘loan sharks’ and some people consider payday lenders to be akin to these unscrupulous people. The image is either make repayments as well as face the consequences. However, while it is true that failing to make repayments on your payday loan can adversely affect your credit history, and you can be taken to court, if you ensure that the lender you approach is reputable, you should not need to worry about being taken advantage of. There are plenty of payday loan comparisons sites where you can do some research into companies before you borrow. The industry is far better regulated now, and a well-known lender was recently ordered to pay back £34 million to 97,000 customers who they had been overcharged interest and fees on their loans.

Payday loans companies prey on people who can’t get credit elsewhere

Payday loans are meant to be used by working people whose wages cannot quite stretch to an unexpected expense. Two-thirds of people who use payday loans earn less than £25k per year. However, because the application process is quicker and easier, people who require quick cash but have been turned down by their bank use payday loans as a last resort. They might have been turned down by the bank for having a poor credit history or missing payments on previous loans. This makes them desperate by the time they approach a payday lender. Why else would they take on a loan with 300% interest? However, in the UK, payday loans lenders now must be transparent about their fees and interest rates. Yes, is a great option.