Short term loans

What’s the truth about short term lending?

Some say payday loan providers are very good, while others insist they’re ruining the country, but where does the truth lie in this story?

When it comes down to brass tacks, payday advance lending isn’t inherently evil nor good; like any tool, financial or otherwise, it matters in how its wielded. Responsible use of instant cash loans from payday lenders can help to relieve the burden of a sudden, unexpected financial emergency, but borrowers can end up in deep debt if they don’t stop to understand exactly what it is they’re getting themselves into – so you as a borrower need to make an educated decision when it comes to short term loans.

Not the worst choice you can make

If you take the time to speak with any payday lenders, you will be given a myriad of reasons for why taking a payday loan is one of the best ideas ever, since you can receive the funds you need in a hurry – quite often the same day or within hours of your initial application. This does mean that payday loans are ideal when you’re in a bit of a bind due to a financial emergency that can’t wait until your next pay period.

In all honesty, you could do much worse than selecting a payday lender for emergency funds in such a situation, as you don’t have the ability to spend time waiting for a traditional lender go get back to you. Despite this, you need to keep in mind one of the most important things about short term lending such as this: you’re going to have to repay this loan in full, plus interest, when the time comes – or face some serious consequences.

That was the carrot – here’s the stick

There’s a reason why it’s so easy to secure payday advance lending: the lack of a credit check or waiting period means massive risk for a lender, so they offset this risk by charging what can easily be considered exorbitant interest rates on these ‘instant cash loans.’  The total cost of a payday loan is usually the amount you take out from a lender, plus anywhere from £20 to £30 per every £100 in cash you borrowed, meaning that taking out £1,000 – the usual maximum figure you can take out from most payday lenders – will cost you anywhere from £1,200 to £1,300, which may be all right if your chequebook can bear the strain, but if you can’t, well, you’re in for a world of hurt.

Payday lenders don’t take kindly to you missing your repayment deadline. In fact, you can look forward to massive late fees tacked on to the cost of your loan, plus the majority of lenders will ‘roll over’ your initial loan, which may sound good considering you’ve got an additional month to repay your loan, but you’ve got to repay not just the original interest but double that instead!

Suddenly it all makes sense – you get the loan with absolutely no hassle whatsoever, yet with such exorbitant interest rates and punitive late fees, lenders will squeeze you like a sponge, wringing every last penny from you they can in order to ensure they regain as much profit from you as possible as a deterrent to those who may not be able to afford such strict terms. The problem that many Brits face is that many lenders may not be doing enough to draw attention to the consequences of taking out a payday loan – the strict repayments – which may be a contributing factor to all too many falling into unsustainable debt, so think long and hard before taking out that payday loan.