Financial Security of Payday Loans
In a world where there is no economic stability and financial certainty, it is not uncommon to find oneself in a situation where there is a shortage of cash to meet daily needs. Income may not last the entire month or week because of unexpected and unforeseeable expenditure. So if a person earning, say 2000 dollars a month, finds that, out of the ordinary, his income is not sufficient to make ends meet because of any of the innumerable reasons that there might be, such as increase in maintenance costs or car accident, etc., what does he do? One of the options available is a Payday Loan. UK payday loans are loans taken by people for the purpose of meeting their urgent and short term cash needs. When ones expenditure is in excess of one’s income only temporarily, the money that one borrows to meet his daily needs is called Payday loan. So in the above hypothetical example if my income is 500 dollars short, I can take a loan for that amount and repay it when I next receive my income. That is why such loans are called payday loans, because they are usually paid on the next payday of the borrower. Because these loans are short term and unsecured the rate of interest charged is quite high. Interest rates can be as high as 15% for 2 weeks which comes to 390% a year. As a financial tool its preference is low because of the high rate of interest. Payday loans also encourage higher consumption expenditure rather than expenditure on asset creation.
