In the ideal world, everybody would plan their finances and be prepared for any contingency. In fact, in the ideal world, there would be not contingencies. However, that not being the case, from time to time, people take loans for various reasons. Housing, vehicles and children’s education are some of the more common reasons and most of these loans are given by banks or various other established financial institutions. There are also people who borrow using the option of pikavippi, which do serve an immediate purpose, but can be ruthless on the borrower in the long run.
What is Payday Loan?
Some people also take out loans and mortgages for tax purposes. However, there are times when people do need money in a hurry; it could be due to an unforeseen circumstance or just bad financial management. These loans are typically not very large sums as they are usually unsecured loans, i.e., loans without any collateral security. Only a check is given to the lender which can be cashed at the time of repayment. Due to the fact that these cash advances can be given at a short notice and that too without any security, they attract a high rate of interest. Pawn shops and check cashers are common sources of obtaining these loans.
The Debt Cycle
With high interest rates and low repayment period, it is not uncommon to see people taking a second payday loan to pay back the first one. A bounced check not only invites more fees from the lender, it also negatively impacts the credit ratings of the borrower. Bounced checks can also provoke the lender to file legal suits if the money is not repaid in time. To avoid all these problems, a borrower applies for more loans from other lenders.
The critics of these loans are many and have cited many cases where lenders have used coercion and sometimes force on the borrowers to recover the loans. Additionally, most borrowers were found to be from the lower income strata of society and hence did not qualify to borrow from regulated institutions and banks. Many places have actually banned this form of lending, while others have placed strict guidelines and restrictions for the lenders in terms of the rate of interest and recovery methods.
Lenders of payroll loan argue that these short term loans are the last options for many borrowers. They take this option only after all other sources have failed them. Too many regulations and restrictions could impact these borrowers negatively and if someone is in desperate need would even turn to crime. While this claim may be an exaggeration, it cannot be denied that payday loans do provide some relief, however temporary to the borrowers.
While the principles of this loan can be debated, it is important that people adopt better financial management habits. Household spending should be budgeted and savings & investments encouraged. Families and individuals should show more prudence in monetary affairs and avoid unnecessary and over the top spending and borrowing.