Are payday loans corrupt or legit? This is the question consumers are asking themselves these days.These loans are a valid form of credit and certainly a better option than going to a loan shark. But why then are some people calling these loans corrupt?
According to Consumer Focus, the number of people taking payday loans has more than quadrupled since 1996, and they remain to be a popular form of credit. It seems that the problem is that there needs to be a limit on the number of loans people take out and how many times they are allowed to roll the loan over. And therein lies the problem.
It's not that payday loans are corrupt, the problem is that consumers cannot make their money last till payday and they are taking out loans that they cannot afford to repay, and then taking out another loan on top of the old one. The reason why payday loans are being targeted as corrupt is because of the higher finance charges.
But why are payday loans more expensive than other loans? The reason for that is the lenders take a high risk advancing these loans by:
Asking for no collateral to secure the loan; Performing no credit checks before advancing cash so there is no way to establish the credit worthiness of a borrower.
Any high risk loan attracts a higher interest rate with any lending institution whether it be through a bank or a private finance company. And in most instances a borrower is refused credit if they have bad credit, and this is probably not a bad thing.
If consumers borrowed responsibly then there wouldn't be a problem. Consumers are asked to take out ONE loan at a time, and ONLY if they can afford to pay it back with their next pay check. They must not take out another loan until they have repaid the first and not roll the loan over. This is where the costs start to creep up on consumers and in six months with no repayments their original loan could have doubled.
Payday loans are short-term advances on your salary or wage and should be treated as such. Abusing the system is giving the payday loan industry a bad name which it doesn't deserve because many consumers need to use this form of credit in the current economy.