Payday loans are a great way for someone in need of quick cash to get money to pay the bills. They are often called “cash advances” because they are essentially an advance on their wages.
Hence the lender gives money to the customer in exchange for all or part of their next pay cheque. All that this type of loan requires is information on the next payday of the customer, which is usually payroll information.
They are usually relatively small loans and they are not secured with collateral. This is the biggest difference between this type of loan and most others. Other loans usually have collateral, are larger, and are usually long term.
Why are the fees so high?
Payday loans often pose risk to the lender because they aren’t secured. This means that if the borrower loses their job or is otherwise unable to make payments on the loan, the lender has no guarantee of remaking that money. This can lead to some failing repayments causing court action or county court judgements and have spurned a new industry in which ccj loans are now available.
Therefore for approval on cash advances a lender must be able to judge potential customers eligibility. Avoiding customers’ not repaying their loan is paramount and avoidance of this scenario is of course every lender’s remit.
Do I have to offer security?
There is also a risk to the borrower for cash advance loans but it doesn’t come in the form of a guarantor or security needing to be offered.
- The interest on these loans is higher than that of many other loans, so the borrower has to be sure that they can pay it back to avoid debt and bad credit.
- There is also risk if the customer must pay back the loan and it requires the entirety of their next paycheque. This causes the customer to have no money left right after their payday and unable to pay any bills or expenses.
- They then need to take out another loan, and it can create a downward spiral that causes repeated problems for the customer if they can’t get out of it.
Due to these risks, both to the loaner and the customer, there are many critics of cash advance loans. Their main argument against these loans is the problems it can cause for the customer if they get trapped in the cycle of needing loans and spending money they don’t have.
While there are certain risks associated with cash advance loans, there is also the advantage of helping someone when they really need it. Though some people are against them and find them unethical, there are also people who have found them helpful and who have benefitted from one.…