Why payday loans can be the root of the problem

Jamie FrankfieldPayday loans should be stopped because they try to deceive people and trick them into getting further into debt. They must already be heavily indebted to be trying to get additional funds to make ends meet before they get their next pay. I believe payday loans should not be encouraged as people get the tendency to overspend and spend more than they earn so that they are living beyond their means.

Instead people should be educated about how they should manage their personal household expenses and budget so that they do not run out of cash before they get their next pay. I wonder whether payday loans are legal and whether they have obtained necessary clearance from relevant financial authorities to be sold in the market.

I am convinced there is something fishy and tricky about payday loans. How can companies give payday loans? What criteria are used to sanction such loans? Nowadays there is so much publicity everywhere and ads comparing different firms offering payday loans with these firms competing with one another and each one offering better terms to attract more clients.

If these firms give payday loans only to clients who already have a good credit rating then the client with such good credit rating does not need to have recourse to payday loans. It is only those whose credit rating is not so good who in fact really need payday loans. But the catch is that their applications are more likely to be declined due to their poor credit rating.

Payday loans are also called short term loans and cash advances and the consumer should exercise much caution before getting hooked to apply for such ‘loans’. They may be letting themselves into a spiral of debt out of which they may not be able to get out. There may also be a very high price to be paid in terms of excessively high interests and other hidden costs while some of these firms may be frauds.

Payday loans represent a form of extremely expensive credit which should be avoided at all costs with the consumer having recourse to them only as a last resort after having explored all other alternatives. Hence payday loans are not to be recommended. The consumer does have other reasonable options, the first option being to have a realistic budget and not to overspend.

Otherwise bank overdrafts and credit cards can also be considered. Temporary increases in overdraft and/or credit card limits can be explored as better alternatives to payday loans.