Does it deserve it?

A very popular way of borrowing money is payday loans, because it is very easy to borrow a small amount of money this way. However, the payday loan industry has been getting a bad rap in the media.

Why is this?

1. There was a handful of lenders who behaved badly and gave the entire industry a bad name. They took advantage of their borrowers and were not upfront about their terms.


2. Some borrowers jumped into payday loans without fully understanding what they were getting themselves into. All the information that a potential borrower needs to know, including terms and rates of the loan, is contained in an agreement between lenders and borrowers. The borrower is supposed to read this document before borrowing. However, many times, the borrower doesn’t actually read it, leading to future problems! Sometimes, the borrower tries to read it but can’t understand it, because it’s all in legal jargon. To avoid this, read your loan agreement thoroughly before you sign. If there is anything you don’t understand, if you have any questions, ask your lender. I’m sure they will be most happy to answer your questions to your satisfaction, in order to win your business.


3. High interest rates. There are many loan products with high interest rates. However, payday loan interest rate is a topic which has made it to the media more recently. To be able to "compare apples with apples" and see which loan is most suitable for you, make yourself a little spreadsheet. On this spreadsheet, have different columns for interest rate, closing costs, appraisal fees, inspection fees and other costs. The amount you want to borrow and how long it will take you to pay off this loan must stay the same. This way, you will be able to work out which loan is the most expensive, which is the cheapest, which is the most suitable loan for you.


4. Misuse of loans. Borrowers who depend on loans on a long term basis and those who repeatedly extend their payday loans for more time will eventually accrue huge financial charges which they will be unable to pay. This is the same disaster that occurs to people who use their credit cards and then can’t pay them off. With payday loans, instead of rolling the loan over when it is due, do everything you can to pay it off. If you don’t do this, it will cost you a huge amount in financial charges.

Payday loans should be used for short term financial needs only and not as a long term financial solution. If you have credit difficulties, you should seek credit counselling.