Payday loans help poor people feel better. Therefore, in developed countries, the government does not restrict lenders by regulation and introduces social programs for borrowers.
Loans for the poor
Low income citizens are not interested in banks because of their low income or bad credit history. Hence, they take out short term payday loans online from non-bank institutions at interest rates that notorious lenders of the past never dreamed of. We are talking about developed countries like the USA, Great Britain, Australia, Canada, where the interest rates on the loans of the big banks have been very low during the last decade.
A hallmark of “payday loans” is a short term of one day to one month, small volume, and high interest rates of 1.5-2% per day. For example, in the UK they received the official name of HCSTC high value short term loans, in Australia – loan contracts with small amounts of SACC. Recipients of such loans often underestimate their costs and overestimate their own financial capacity. With the start of the repayment day, they are forced to renew the payday loan, especially the one from MoneyZap.com, or take a new one. Thus, they fall into a vicious cycle of debt dependency.
How to quench the greed of lenders?
Regulators in some countries have realized it’s time to protect negligent borrowers online:
- Australia: Legislative legislation banning loan contracts for up to 15 days in 2012. In 2015, the Australian Securities and Investments Commission (ASIC), after reviewing documents from 13 lenders, concluded that loan contracts were concluded with those who could not afford it. After that, ASIC banned charging fees for the repayment of payday loans;
- United Kingdom: the Financial Conduct Authority (FCA) in 2014 initiated restrictions on the cost of short-term loans (the loan commission cannot exceed 100% of its amount);
- United States: The Consumer Financial Protection Bureau (CFPB) proposed new rules for online payday loan providers in 2016, although in February 2019 an initiative was taken to rescind them. The office made lenders check borrowers’ incomes and make sure they have enough both to pay off the loan and to live on. They also banned the granting of payday loans to those who already have several unpaid debts. Such moves have chilled short-term lending in the countries that have introduced them and prompted lenders offering payday loans online to look to less regulated markets.
Why Trust Payday Loans Online?
However, despite the restrictions and an active information campaign, online payday loans remain very popular. Commenting on the trends in the HCSTC market, the UK FCA noted that more than 5.4 million loans were issued from August 2017 to July 2018. At the same time, borrowers had to pay on average 1.65 times more than what they received. Therefore, the regulator has decided to maintain the price cap until at least 2020. The terms and conditions of online payday loans emphasize the reliability and confidentiality of borrowers who deal with verified MFIs.
Should I rush to pay off the debt?
It is certainly not worth doing it. Although debt growth is limited by law, the consequences of non-payment will always be there. Here is what it can be loaded with:
Bad credit history
The microcredit information is transferred to the credit bureau. If you don’t pay the money back on time, it will be reflected in it. Thus, you will not be able to get bank loans at a low interest rate. At least 10 years after debt repayment until data is archived.
Meet the bailiffs
An MFI can try to collect debts through the courts. If the decision is made in his favor, then the bailiffs will close the accounts, describe and sell the property. In addition, you will not be able to travel abroad.
Communication with collectors
Microfinance organizations actively use the services of collectors to such an extent that online payday loan debtors have been protected from intrusive calls and visits by special law.
Collectors are allowed to:
- communicate with the debtor with his consent;
- recall the debt and talk about the consequences of non-payment;
- call the debtor no more than once a day, twice a week, eight times a month;
- meet in person no more than once a week.
In reality, the requirements of the law are not always met. Collectors often terrorize both debtors and their relatives.
When are loans paid off online?
Can a payday loan be profitable at all if the real interest rate is high? It can, but under certain conditions. First of all, as a new customer, you can choose between interest free loans. Second, it’s best to partner with a company that has attractive as well as permanent loyalty programs: it rewards interest-free loans, discounts, or ranks among the cheapest lenders.
The most profitable are the interest free payday loans when the customer does not incur any expenses. But the condition for using the stock is prompt debt repayment. Otherwise, it is not enough to charge standard fees as well as penalties and fees. Before taking out a payday loan online, make sure that it is secure.
Payday Loans: Pros And Cons – Why Is It Safe To Take Them Online?
In the financial market, you can find cheap payday loans online and expensive loans that fluctuate in cost within maximum limits. It is worth using comparison sites that make decision making easier. A personal loan will not be profitable if it is used to repay a previous loan. The best solution would be to look for savings, additional work or a loan consolidation. Instant payday loans can be cheaper than the bank loans offered. However, one should never forget that this is always a short term loan.
In general, the idea of online payday loans is not that bad. This is the way out for those who are in dire need of money and are ready to return it quickly. For example, you need expensive medicine, but your salary is only two days. You take out payday loans online and return them the day after tomorrow. The overpayment is moderate even with high interest rates.
Microcredit is fair and the consequences depend on how you use it. The problems start when microloans are misused. Common situations are:
- A person does not have to pay anything for a mortgage and takes a microcredit to take this money to the bank. As a result, a borrower will then have to pay both the mortgage and the microcredit. The chances that a borrower will have the funds for both contributions are greatly reduced. A person will not have enough money for two payments next month. A person will choose to deposit money for the apartment so as not to lose it or bring it to the MFI. Whatever decision a borrower makes, the situation is already getting out of hand.
- A person needs a large sum, but the banks refuse the request. You take out a loan from a microfinance organization, regardless of the actual cost of the loan.
As a result, the microcredit debt increases and it becomes first difficult and then impossible. One of the main reasons for this is the low financial literacy of the population.
Frank Glemstone story. Frank graduated from the Masters program in Economics. He has written extensively on personal finance and wealth. As the principal author of MoneyZap, he now connects with clients across the country, helping them achieve their financial and life goals.