Payday Loans and why Installment Loans are Better

Payday Loans are essentially cash advances that are given to people who are in urgent need of cash. This is vague, as it does not clearly define the pre-requisites very clearly behind being eligible for such a loan. The pre-requisite for applying for such a loan is a valid ID proof and other basic documentation which facilitates the entire process within minutes. This is something that has attracted many people towards these loans, as this is their main feature. This also happens to be one of the main reasons why people are so dependent on these loans, as they are extremely easy to access and unlike other financial institutions; they do not pay emphasis on your credit background or do not do a thorough check on your affordability.

This is the primary factor behind experts being extremely critical of these payday loans and many of them have gone to the extent of claiming how there are many alternative financial products available in the place of payday loans and why installments are better. There are many products available in the financial world and payday loans have given rise to a class of loans which are distinctly different from the rest of the financial products that we know of today. When one understands payday loans in the commercial sense, they are regarded to be uncertain financial instruments because of the risk that they carry in terms of their repayment terms, their high interest rates and the time period associated with repaying a loan. A simple example of a payday loan would be a person taking out a loan for 375 pounds and ending up paying close to 500 pounds at the end of 14 days. Now, for a period of just 14 days, this is a huge amount and the demographic these loans have been targeting are people with a low or absolutely no stable source of income, single income parents who cannot afford their children’s education or teenagers with a valid ID working somewhere, looking to make some extra cash. There are several problems that these payday loans can pose, apart from leaving a permanent dent on someone’s source of income.

Apart from the financial debt trap these loans can bring you into, these loans also have the capacity to affect your social status which can then lead to bigger and more severe problems in the future.

• A teenager without a stable source of income being eligible to apply for a loan, with some extra cash in his hand will lead to larger issues that a parent might have to deal with. He may spend the amount recklessly leaving the burden of repayment on the parent, which could then lead them to take another loan to repay the previous one.
• A single income parent who cannot afford to pay for her children’s education gets lured into this attractive looking financial product without fully understanding the implications of using such loans, this can partly be blamed on the payday lenders as they have not been responsible with their advertising by refraining from putting out the necessary risks involved with using these payday loans. A single income parent might take out this loan once, mostly to pay off her bills which will give rise to more expenses as she will need extra cash to pay off the loan she has taken.
• The population that is using these loans for emergency purposes, such as in the case of an emergency car repair work to be done might benefit from these loans but these people represent a minority of the population that is taking out these loans on a regular basis.

 

There are several alternatives to payday loans and one of the most important ones to be discussed are none other than installment loans and to end the madness behind payday loans and why installment loans are better.

• Installment loans carry a much lower interest rate than in the case of payday loans which is an automatic advantage that these loans may have over payday loans. A low interest rate means the original amount that one has borrowed will not greatly differ from the amount at the end of the loan period.
• Installment loans also have a fixed rate of interest which means it is simpler to identify your expenses over a period of time and calculate your expenses at the end of the loan period. Knowing how much you will end up paying and knowing that you do not have the burden of fluctuating interest rates automatically reduces the threat these loans may have on your bank balance, as it will give you a chance to forecast your expenses.
• Installment loans essentially mean that you are required to pay equal amounts every month for a considerable amount of time. This has a major positive impact on the borrower as one has the ability to understand how he/she has to manage their expenses on a monthly basis. If you a responsible borrower, you will keep your savings aside for your loan in addition to your normal day-to-day expenses.
• Installment loans also carry much lower penalty charges or fines associated with non-repayment of loans, certainly with no comparison to payday loans. There are certain financial institutions that do not carry any penalty charges or fees.

 

Conclusion:

All in all, it is important for a borrower to know that there are alternatives to payday loans that are available. Financial institutions also need to be more inclusive in their approach by introducing such loans to all kinds of people, ensuring a proper background check. The more the banks start adopting this approach, the more smaller institutions will follow suit and we can strive towards a financially more stable economy. Installment loans have been encouraged by all experts and there needs to be a greater emphasis that is to be laid on the introduction of such alternative products. Once installment loans are given the attention they need to get, the dependence on payday loans will drastically reduce.