Payday loans – bait or manna (covid-19)?

Dangle a juicy carrot in front of a hungry rabbit and rest assured that the animal will nibble on it. The situation is similar in the current economic clime where payday lenders are cashing in on the desperation of credit hungry consumers. The industry per se has drawn a lot of flak in recent times for a variety of reasons. Some believe that lenders are using “aggressive marketing techniques”, while others feel the APRs are ridiculous. Since lenders conveniently ignore the fact that their customers are people who are already struggling to keep insolvency at bay, the efforts to woo them are usually centered on “your need – our solution” campaigns. So, the target audience is essentially the credit hit section of USA that is lured into a baited cage with the promise of deliverance.

One cannot blame payday loan customers, though. Surface skimming always reflects the “troubleshooting” abilities of a payday loan. Simple to the practical eye, this loan product is a no-hassles solution to a short term cash problem. Like a lender says, the interest rates are also proportionately low since the loan amount is very small. Borrow a few hundred pounds for a month, pay a couple of tenners as interest and get the loan out of the way when your next paycheck arrives. The fine print has deeper revelations, on the contrary. Ask yourself these questions. What if… you are unable to repay the amount in full when the next pay cheque arrives…you want to extend the loan…your account has insufficient funds and the lender’s withdrawal attempt fails. You’re facing a potential crisis called a debt scenario.

There are smarter rabbits, one must admit. Fortunately, for the industry, these are the cases endorsing their credibility. The what ifs do not exist for a sensible customer since the loan is repaid on time, and precautions are taken to avoid default fees. The APRs also start making sense then as the tenners do not turn into hundreds. So, would you fall for a payday loan or leverage it?