Are Payday Loans a Help or Hindrance?

Payday loans are known by many to be the quickest and most convenient way of receiving a short-term loan. Though unsecure, they provide desperate borrowers with the money to help fulfil their needs. However, the system of payday loans is one that has come under much scrutiny due to a variety of issues. This article will explore the value of payday loans and discern whether the controversy surrounding the practice is justified.

Controversies

The most well known and obvious controversy surrounded payday loans is inflated interest rates. Some payday loan companies charge interest rates of up to 2000%, which in 2010, even prompted the Archbishop of Canterbury, Rowan Williams to lobby for an urgent review of the sector.

However, extortionate interest rates for payday loans won’t really come as a shocking revelation for many of us. In fact, companies make no secret of their high interest rates – albeit forcibly due to government regulations – and nonetheless, many still choose to go down the route of payday loans. In reality, figures of 2000% interest rates seem a lot worse than they are on paper. For many, this is often really the equivalent of around a tenner a week, due to the nature of their loan, which put in such context would seem much more people-friendly.

What is worse are incidents of blatant fraud involving payday loan companies. For example, last month, payday loan firm MCO Capital were shut down and fined £544,000 for allowing themselves to be duped by fraudsters. The Office of Fair Trading (OFT) ruled that the firm had broken the rules on money laundering by failing to check the identities of its borrowers and thus rendered itself vulnerable to fraud.

Furthermore, Wonga were criticised by trading watchdogs in May for using aggressive and misleading debt collection methods.

The Reality

These days, nothing comes without controversy. Furthermore, it would be an insult to the general intelligence of the British public to assume that the majority of those who opt for a payday loan do so without knowing the risks involved. Some of course are clueless enough to be somewhat ignorant of the reality behind payday loans but most do so for lack of any other option.

Such people face severe financial difficulty and a payday loan then provides these people with the golden means to alleviate some – if not all – of their short-term money problems.

In essence, payday loans are a short-term solution to be taken only as a last resort. Nonetheless, they are a very valuable last resort, and the scrutiny surrounding them does not mention the numerous amounts of people who have actually been bailed out and saved by the practice.

Lastly, it must be stressed that unfortunately, there are a number of immoral acting payday loan offering companies. These should be avoided at all costs and one must therefore research which loan businesses are certified, reliable and honest, through customer feedback and watchdog reviews.

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