Usually people face cash problem at the end of the month. By the end of the month, many people lose their salaries and have to consider options like loans to meet their expenses. But as far as possible in this situation you should avoid taking payday loans.
Why do people like payday loans?
The concept of payday loans in India is new and most people are not even aware of it correctly. A payday loan is an unsecured loan that needs to be repaid within a short period of time. It is a high-interest loan that can be used during periods of low income or high expenses in a month. Also you can use it for any purpose like personal loan. So consumers use it to meet their recurring expenses, to pay for special events, to meet emergencies or other needs. Most young professionals prefer payday loans because they are easily accessible compared to other loans. However, due to non-payment of loan on time and high interest rate, sometimes consumers also face trouble.
Know these things about payday loans
Payday loans are a quick and hassle free way to manage money, which is why it is also very popular. Compared to other loans, its approval and the process of getting the money into its account takes very less time. You can take a loan ranging from Rs 5 thousand to a few lakh rupees. The loan interest rate is determined by the lender based on your profile, credit rating, the amount borrowed and the duration. People often opt for this type of loan only when there is an emergency or when they need immediate money. Since payday loans are a convenient option, people often do not understand the loss of this. Most borrowers do not realize the huge amount paid as interest on such a loan, because its duration is too short. Generally, on a payday loan lenders charge interest at the rate of 0.5% to 1.5% per day. It becomes 365% in a year. This is much higher than any other loan. For example if you borrow 2000 this month and you are asked to pay 2500 when your next salary arrives, then you will not have trouble. But you have to pay a lot of your money in the form of interest.
Some common pitfalls of payday loans
High APR – The annual percentage rate of these loans is higher than other loans. Thus, if the borrower is not able to repay them within the stipulated time, it proves to be very expensive. People often have to pay interest at a higher rate due to the costs associated with the loan.
Debt trap If the borrower is unable to pay the payday loan on time, it may get stuck in the debt trap. A large part of the profits of such lending institutions come from those who are unable to repay the loan on time and increase their debt and get caught in the debt trap.
Confusing lender – There are many lenders and companies in the market that offer payday loans to customers. Many of these institutions are not authorized, so they may try to give credit by confusing the customer. The unauthorized institutions do not inform the customers about the exact information and terms of the loan. It can charge additional amount as late fees from customers. So beware of such institutes.
Should I get this kind of loan?
Payday loans can be considered a good alternative to a bank loan, but it cannot be called a great option. After taking this type of loan you have to pay interest at a higher rate, so you should take this type of loan only when you are in serious financial crisis. Many young professionals take payday loans to meet month-end expenses due to lack of money or low income. Young people are not able to avoid taking this type of loan due to the facilities offered by the lender and easy loan approval and other inducements. Customers often think that this is an easy source of taking a loan. An emergency does not come every month and people become addicted to it and opt for it even when not needed. If customers continue to take loans for unnecessary expenses and are unable to pay on time, it will have a negative impact on their credit score and they may face problems while taking any other loan.
Consider these cheap options in times of financial crisis
Payday loans should be your last option and not the first due to easy availability. The following options should be considered before applying for this type of loan. Considering the following options will help you to keep your financial life simple and debt free.
- Get advance salary for the coming months from your employer.
- Borrow from friends or family members.
- Cut down on your unnecessary expenses.
- Try to start a side business or look for an alternative source of income. Such as online business or freelancing etc.
