payday loans are small loans in which the borrower agrees to pay back when they have received a paycheck. Lenders charge very high interest rates. Although these loans are tied to the borrower’s salary, they are unsecured loans.
An unsecured loan is a loan without collateral (collateral) or without a guarantor.
The Money Advice Service has the following definition of the term:
“payday loans are payday loans originally designed to help people get through payday. The money is paid directly to your bank account and you pay back all interest and fees – at the end of the month.
We also call this type of loan a cash advance loan, small dollar loan, payday loan, payday advance and payday loan.
payday loans – beware
payday loans are an extremely expensive way to borrow money. Only withdraw an amount if you are 100% sure that you can repay the loan on time.
If you pay late, the amount you owe can quickly spiral out of control.
Just put; These loans are expensive and can worsen your financial situation. Especially if you can’t repay the loan on time.
Make sure you’ve exhausted all other possible ways to get a money before considering a payday loan. Other ways, for example, are to ask your boss for an advance or to borrow from your bank. You can ask your bank to increase your overdraft or, if you don’t have one, apply.
Law
Many countries have introduced laws that limit the amount lenders can charge for payday loans. In 2015, in the UK, the Financial Conduct Authority (FCA) imposed a price ceiling of 0.8% per day.
To protect troubled borrowers, the FCA has also imposed a £15 ceiling on all default fees. Therefore, for every £100 someone borrows on a 30-day contract, the one-time repayment will not exceed £24 in fees. Default occurs when a borrower is unable to repay a loan.
Two years later, the FCA wrote in a press release:
“The review provides clear evidence that the FCA’s regulation of high-cost short-term credit (often referred to as ‘payday loans’) has provided substantial benefits to consumers.”
“Reviews show that 760,000 borrowers in this market save a total of £150 million a year, businesses are less able to lend to customers who are unable to repay and charities are facing Fewer customers have high debt problems short-term credit costs a lot less.
Wonga, a UK-based short-term loan provider, charged an APR of 5.853%.
Should we ban payday loan companies?
Many people accuse short-term lenders of usury. Loan sharking is the practice of lending money at exorbitant interest rates. They think we should ban them.
However, if governments ban them, will people then turn to unregistered and potentially dangerous loan sharks?
