Mortgages, Short Term Loan, Payday Loans, A boon or bane for the economy?

by ExpertBlogger 2. October 2018 15:00

The attractive option of getting the loan on same day and repaying it back the next payday without suffering a huge debt or credit check is the major advantage of payday loans. A small provisional loan taken to conduit the borrower's cash flow gap between paydays, is referred to as a payday loan. They are loose, but have high-interest and for a short-term and can be aptly referred as micro loans. These loans are usually settled in cash, and the lender processes the cheque or takes out from the borrower's active account on the date of maturity of the loan. 

As evident from the name, the loans are usually taken and repaid within a period as long as of 30 days. Also, the payday loans are usually repaid on next payday, therefore one can see that they are always in control of their payday loans irrespective of what others would say. Giving each one of us a viewpoint that we are our own masters of our payday loans is the most fruitful strategy charted by the providers of these loans. This is because the payday loans have highest rate of interest as they are repaid in less than a span of 30 days. 

So with this the banks and the lenders will definitely opt for Payday loans because even if a bank has or bad loans and stuff. For the lender it is low hanging fruit and as it is an easy money. However, according to a research survey it has been recorded that after subtracting the fixed operational cost and the default losses, the payday loans company does not make considerable profit. There have been cases of fake cheques presented by borrowers as security, and as a result, such cheques bounce when being en-cashed by the bank.

In developing economies like India payday loans are not very popular because of the gravest reasons like a pile-up of bad loans, Indian Banks seem to be pursuing the wrong race. The non-performing assets (NPA) accumulated by Indian lenders are higher than those of Indian banks as contrast to many of the major economies of the world, including USA, UK, China and Japan. Indian banks' gross non-performing assets (NPAs), or bad loans, stand at INR 10.25 lakh crore reported on 31 March 2018. This pie of the cake now accounts for 11.8 percent of the total loans given by the banking industry. For financial year 2018, the total bad loans of these banks rose by a whopping amount of INR 3.13 lakh crores.  It will take years before these banks can get rid of NPAs, accumulated over the years on account of multiple factors.

 Also even the lenders are not easy-going on their customers. Quite often these payday lenders are criticized. They are called the merciless loan sharks attacking the poorer section, low income areas, which are unable to realize the time value of money. Many people find the interest rate on the payday loan puts the weaker section in difficulties, whereas the richer community can afford to pay even up to 25% interest or so on their credit cards.

Pay-day loan is a benefit for customers because they can save you in times of distress. Had it been possible to know or predict financial emergencies, then payday loans would not have happened! Many at times you may find yourself caught in unexpected situations and you may not be well equipped to deal with the situation. Like when you fall sick, or your car breaks down, you would have to bear on your planning budget for the month. So for these kinds of short-term money crunch situations, payday loans are of great help as one can get instant cash right when needed. Pay-day loans can be applied for online as well and the money gets deposited into lender’s account directly and instantly.

To conclude, in the long run if the bad loans increased due to pay day loans then it would be because of the lenders who do not do a thorough check of the credit history of the customers or burrowers. However the things go smoothly and if proper background checks are conducted on both sides then they are very beneficial for the middle income strata and also the banks or financial institutes that give these micro loans on short-term basis.