Payday Mayday! The Hidden Danger Of Payday Loans

Paydays are the most eagerly looked forward to days in the
entire month. It's the day our coffers fill up and a
general sense of wellbeing pervades the atmosphere. The
long awaited personal gift can be bought, dinner at the
fancy restaurant is a possibility and some wise folks even
add up to their savings faithfully at the end of that day.

There are however quite many people for whom the joy of the
payday lasts no more than a few seconds. These would
generally be those who have payday loans to repay. Even
before they can feel the money, it's gone!

What is a payday loan and why exactly is it so monstrous? A
payday loan is a loan of small amounts taken with an
acknowledgement to pay back the same when the next earliest
paycheck is received. The loans are usually for small
amounts not more than $1000. These loans are easy to
obtain, as the lenders do not require a credit check or
collateral.

Such loans are also seen as emergency money that may be
required by anyone at any time and such that can't be
covered by existing funds or due to inaccessibility of the
same.

For example, a breakdown of the heating system in winter
requires immediate attention. If you do not have the
immediate funds you take a payday loan to have the same
rectified.

There are however certain problems related to such loans
that many overlook.

One of the most important problem is the high rate of
interest that is charged on such loans. It comes across as
grossly unfair when you compare the rates with those of the
other loans and discover that the annual percentage rate
(APR) of a normal loan would be 7% while that of a payday
loan averages 400 % and even higher.

Then there are also charges applicable for the service. For
example, on a loan of $100 you may have to pay $20 thereby
bringing the total payable on payday to $120.

Moreover if you fail to settle the amount on payday you can
roll over the same but for which you will be charged the
applicable rate of interest. You may also be charged fees
for your inability to settle the same on the due date.

As these loans are usually taken for short periods, about
14 days approximately this means that any rollovers claim
increasing rates of interest. The borrower then gets into a
never-ending credit cycle that is very hard to break.

If a payday loan is taken from unlicensed or unregulated
lenders it only makes the matter worse. Moreover if you
have not received the terms and conditions of the loan in
writing prior to commencement, then it becomes even more
difficult to assimilate the total charges due. This can
only cause more confusion and problems for the borrower.

At the end of the day you realize that these payday loans,
so alluringly called cash loans are nothing but monsters
that can never be satisfied.
Copyright (c) 2006 Ranci Endo (UK) Investments

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Francis Mwendo is an Internet consultant, publisher and
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