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Payday Loans vs Bank Loans

Payday Loans vs Bank Loans

The world of borrowing is littered with all sorts of acronyms and abbreviations, but one that has been around for a while now is payday loans. Best payday loans are short-term loans that you can take out from your local high street bank or building society to cover emergency expenses or just a quick buck when you’re in need. But not everyone knows exactly what they’re getting themselves into – especially if they’ve never taken out a loan before. 

However, there is a debate going on as to whether best payday loans are actually “evil,” or simply an effective means of bridging the gap between cash flow and debt. In this article, we’ll look at both sides of the argument and see who really deserves to be labelled as the villain. 

Payday Loans vs Bank Loans: A Short History 

It seems like every time a new technology comes along it’s hailed by those in the know as being the next big thing, but sometimes these technological advancements are met with skepticism. Take the internet, for example: It was originally thought of as nothing more than a distraction, and certainly the first few years of its existence saw plenty of criticism of this new way of communicating. However, now that people have gotten used to accessing information online, the idea of using it as a tool for finding information about finance is becoming increasingly mainstream. 

This is exactly what happened with payday loans. They were initially seen as something of a gimmick, but over time they’ve become a legitimate option for many people looking to borrow money. There are plenty of websites dedicated to providing information about how to get a payday loan (in fact, there are entire forums devoted to discussing them), and it’s even possible to find a lender at your local high street building society. 

There’s no doubt that the growth of payday loans is due to their convenience. You can get a loan in minutes online, rather than waiting weeks for your traditional bank to process a credit application. And since these loans are usually paid back by direct debit, you don’t have to worry about missing payments or interest fees. 

But despite their popularity, there are still people who think that payday loans should be banned. Why? Well, for starters, they’re very expensive… 

What Are Payday Loans? 

They’re also relatively easy to access. Unlike other forms of credit, such as mortgages or personal loans, you can apply for a payday loan without having any previous financial history. You don’t even need a job, or an income to guarantee that you won’t default on your repayments. This makes them incredibly popular with people who have recently lost their jobs or are struggling to pay bills because of illness or injury. 

But that’s where the good news ends. The reality is that once you’ve taken out a payday loan, you’re unlikely to ever be able to afford to pay it off. They’re designed to help you cope with short-term emergencies, but if you keep taking loans to cover the bills, you’re likely to end up paying far more in the long run. 

So why do so many people use them? Well, the answer is simple: they’re cheap! With interest rates typically starting at 300% APR (compound annual percentage rate), it’s little wonder that so many people turn towards payday loans. 

Who Are the Victims of Payday Loans? 

There are millions of people across the UK who rely upon payday loans each year. According to research published by MoneySavingExpert, more than half of households in the country had taken out a payday loan within a 12 month period, and the average amount borrowed was £1,500. While this figure shows that payday loans aren’t as widely used as some experts would have us believe, they clearly represent a significant chunk of consumer spending. 

And the amount that households are borrowing is growing. Between 2008 and 2015, the total value of payday loans increased by almost 50%. In fact, according to the Office of Fair Trading, more than £3 billion worth of payday loans were issued during this period alone. 

And it isn’t just adults who are affected. Research carried out by Action Against Poverty suggests that children as young as nine have been caught up in the trap of payday loans. Parents often resort to borrowing against their home or car to make ends meet, and then find that they’re unable to pay the resulting debts. If this happens frequently enough, the family may eventually come under pressure to sell their possessions in order to pay back the debt. 

Is Payday Loans Really That Bad? 

While it’s clear that there’s a problem with payday loans, it’s not entirely apparent what the real issue is. After all, if someone has a genuine need for urgent cash, then why shouldn’t they be able to access it? 

Well, there are several reasons why payday loans should be avoided. For one thing, they’re extremely expensive. As mentioned earlier, the typical APR for a payday loan is around 300%, which is higher than most types of credit cards and mortgages. Even worse, this number doesn’t include additional charges that could be levied for late payments. 

If you’re already struggling to make ends meet, you might be tempted to try and save money on repayments – after all, you only have to pay back the initial amount lent anyway, right? Wrong. Most payday lenders charge for early repayment, meaning that you’ll be charged a fee for making the decision to stop repaying the loan. 

Furthermore, this type of short-term lending is rarely suitable for longer-term needs or emergencies. The reason why payday loans are so expensive is because they’re designed to be paid off quickly. When you borrow money for a day, it’s expected that you’ll be able to pay it back within 24 hours. By contrast, a mortgage or a personal loan will require you to maintain regular contact with the lender, allowing them to monitor your finances and ensure that you continue to meet your obligations. 

Another important point to note is that payday loans are not regulated by the Financial Conduct Authority, the body responsible for overseeing the activities of banks and building societies. Because of this, there’s no guarantee that a payday lender will be able to offer you a fair deal. 

As a result, you’re much more likely to encounter unscrupulous operators who will demand payment upfront and refuse to accept anything less than full repayment. If you fall victim to one of these operators, you could end up losing everything you own. 

So Should We Ban Payday Loans? 

Although it’s true that payday loans are costly and carry a huge risk of exploitation, it’s important to remember that they’re often the best solution for many people. If you find yourself unable to make ends meet because you’ve fallen ill or injured, you’ll probably find that a payday loan offers the best chance of survival. 

It’s certainly true that they’re expensive, but they’re also convenient and easy to obtain. If you truly need money immediately, there’s always a chance that you’ll be able to secure a payday loan. 

However, it does seem that more regulation is definitely needed. At present, payday loans are unregulated, meaning that anyone can start operating as a lender without asking permission from the authorities. What’s more, the government hasn’t made sure that people are aware of their rights and responsibilities when it comes to these kinds of products. 

In addition, it’s important to bear in mind that people who are in desperate need of money should be given the opportunity to secure a loan through a reputable source. Unfortunately, payday lenders often target vulnerable people in order to exploit them. 

And finally, as we’ve seen, these loans can cause problems down the line. If you’re planning to take out a payday loan and you’re currently experiencing serious financial difficulties, there are other options available to you. You might consider applying for a hardship loan or a credit card with low APR. Or, perhaps you’d benefit from talking to a debt management company. 

Whatever your concerns, it’s vital that you understand the risks involved before you decide to take out a payday loan.

Conclusion

Initially, paydays were not considered will be making an impact just like the internet which was thought to be just around and used by a handful of people but after some years everyone started using it and that is how paydays are which been used by almost half of Americans these days. So it has proved a useful option.

Mark Campus

Mark Campus is a content marketer who owns Keenan’s room. A writer by day and a reader by night, he is loath to discuss himself in third person.