The debt cycle of online loan companes and how not to fall for it

Posted by Danielle on September 13th, 2019

Otherwise referred to as cash advance loans, payday loans are short-term, high-interest loans mostly taken out to address immediate or urgent money problems between salary payments! As the name may suggest, the loan is designed in such a way that it should be repaid on the next payday. More and more people are getting attracted to payday loans because of their fast approval and easy application process.

Because they are available and can be accessible entirely online, most people find it very easy to apply for one when an urgent money problem presents itself. Sadly, it is not always all rosy for all applicants. Despite the fact that there are genuine payday loans lenders out there, some unscrupulous dealers are also available, looking to rip you off your hard earned cash. How do you therefore ensure that you get a good deal on the internet?

Taking your time to conduct thorough research on the lending institution you plan to work with will save you so much trouble and heartaches. Ensure you review the cash advance terms and conditions and that you read and understand the fine print before appending your signature on any legally binding agreements. Your thorough background research will help ensure the company you are dealing with is in good financial standing and that it is reputable and trust worthy.

For starters, you can check with the Better Business Bureau website to see whether there are any negative reports made, and if yes, how they were resolved. You might also want to check on Payday loans online forums to see what others are saying about the online payday service provider you are planning to work with. At this time and age when sharing of information is a mouse click away, more and more people who are dissatisfied with the level of service they get often find it easy and worthwhile to warn other members by posting on online social networks and forums.

Long-term debt a real issue

Many people, especially in the United States depend on payday loans to cater for their budget deficit before the next payday. In the United States 37 states have legalized the payday loan hence its wide usage by Americans. Other countries where payday loan is common is Canada, Australia and the United Kingdom. This is because payday lenders provide relief in between pay periods, especially to the poor masses who can hardly afford to get alternative bank credits due to credit constraints.

These are small, short-term and unsecured loans - that is only secured against a customer's next pay check. Overtime, the world of credit and lending has transformed from manual via lending stores to online lending where one simply applies for the loan online, gets an approval, then receives the cash through his or her bank account. The fee plus the amount borrowed is then electronically deducted from the customer's account as soon as the customer gets paid by the employer.

James Lewis, from the website SimplePayday says that, "Many online companies are offering the service around the clock through their websites. This means customers' can apply day or night and have the funds immediately. It truly is 24 hour lending!"

They are undoubtedly filling the widening gap left by the other loan facilities that have credit constraints and cannot be met by a reasonable percentage of population- mainly the youth and the poor. Instead of turning to illegal sources of loans, the population goes for the payday loan payable the next pay day. This repayment requirement in turn reduces accumulation of debt for customers. The role played by payday loans is undisputed, apart from offering quick loan to the youth and poor; it increases household welfare for such population and also provides quick relief in disaster areas.

However, it's not all rosy and has its thorns. The sector has been characterised by many critics as being predatory. This is because of the high interest payable by customers compared to the other credit services. The fact they target the poor population; it is seen as draining money from the poor population. Lenders also ignore legal restrictions by charging very high interest rates, higher than that sanctioned by law. It is for this reason that credit is either illegal or unviable in 13 states in the United States. In addition, this creates a debt cycle where the poor become dependent on this loan instead of working towards managing the available resources and saving up. The lenders take advantage of their economic hardships to make a profit.

It is therefore the responsibility of an individual to examine various loan options and make an informed decision as to whether to take a payday loan. Though to the poor and young population, who face credit constraint, such options can be slim or non-existent, pay check cash advances from employers or loans from family and friends are viable options. Let the informed decision be the key to financial freedom.

Are there any positives about these financial products?

Advocates say they offer a hassle free way of getting cash when you are in an emergency. This cash in advance arrangement makes it quite convenient for you to get quick cash when you need it most. Better still, you can apply for this facility online and have your account credited within 24 hours.

Qualifying

There are several requirements that you need meet before applying for this facility. First off, you must be 18 years or older. In addition, you must have a job or a regular source of income of around £800 to £1000 per month. Finally, you need have valid identification documents as well as a bank account. Payday lenders do not do credit checks, so you need not to worry about your credit score.

The application process

Applying for online loans is very easy because all you need is internet access. Once you have identified the right lender, you will be required to fill out a simple form online. This takes only a few minutes. The approval time is also very fast, often no more than 24 hours from the time of application. However, before rushing through the application process, be sure to read and understand the lender's disclosure information. Pay much attention to the interest rates and fees as well as the repayment terms. Once your application has been approved, you will receive an email or phone notification informing you that the money has been deposited into your bank account. These loans are usually available for up to £1500.

Repaying your loan

Most companies will require you to repay your debt before your next payday. However, some lenders can allow you to make your repayment in installments of up to two months, especially when the borrowed amount is greater than your monthly income. Most often, the lender will automatically withdraw the money plus the corresponding charges from your account on the due date. Defaulting in your repayment can attract fines besides tainting your credit score, hence be sure to repay your loan when it is due.

Conclusion

Online lenders are handy when you are faced with an unexpected emergency. Time is often a crucial factor during these times and the last thing you want when looking for a solution is spending countless hours contacting various lenders or crossing your fingers for days waiting for your application to be approved.