I am asked to write about payday loans a lot, sometimes positive, sometimes negative and sometimes neutral. This has given me a lot of chance to research the subject and form my opinions on it. I never write things that I do not agree with, which means that I feel there are positives and negatives to the loans. With a lot of media coverage in the UK about payday loans at the moment, I thought that I would share my opinion on them and see what other people think.
If you read a lot of payday loan websites, they make out that they started off because they could see there was a gap in the market. They realised that people who had a poor credit record could not borrow money if they needed it for emergencies and so they decided to fill this gap by providing a service that did not credit checks and provided money quickly. This sounds good, they are providing a service by fulfilling a customer demand and that is what all businesses strive to do.
If a person is threatened with eviction if they cannot pay the rent, needs to buy a new fridge as theirs has broken or will have their electric cut off if they do not pay the bill, then it can seem that the loans could come to the rescue. If they have looked everywhere else and cannot find a better lending deal, then it could get them out of trouble. If they use the money for the emergency and then pay it back when it is due, everything will be good and they will benefit and the loan company will get their money back with interest.
This all sounds great, but I did make a few assumptions. firstly that the money is needed for an emergency. many people borrow money to spend on things they could wait for and are therefore unnecessarily paying interest. I also made the assumption that was the best option for them, when there are many people that do not do any research to check out what options they have. I also assumed that they would pay it back on time. Many people do not manage to do this, perhaps because they have borrowed too much or because they have other bills to pay that they forgot about. This is when things can go wrong as some people do not pay and have to pay large fees and others get out a payday loan from another company to pay off the last one and end up repeating this process until they have no way of repaying.
So I feel that, like all debts, if used correctly a payday loan could fulfil a gap in the market. However, if used unwisely then it could lead to much more trouble. What are your opinions on them?