Are Payday Loans Really As Dangerous As People Say?

With recession striking hard in every corner of the world it comes as no surprise that their financial situation is a primary concern for many people these days. Funds, or the lack thereof, heavily influence your quality of living and can have a lasting effect on your future. When there already isn't enough money to go around this is a serious consideration. That's why when the negative media coverage first went public so many people panicked about the potentially negative implications of taking out a payday loan.

First and foremost, before you can understand the inner workings and potential consequences of a payday loan you must first know what one is. Has there ever been a time when you've been a little short on cash until payday? Of course there has. We've all been there at some point or another. This is inevitably the moment when a child needs medical car, a vehicle needs to go to the auto repair shop (where it will cost an exorbitant amount of money to be fixed) or some other crisis will come up that needs the immediate attention of your financial resources.

Since you can't ignore these events you have to find a way to stretch your already overtaxed budget. You could try asking your employer for an advance on your wages, but that may not end well. You could attempt to borrow money from friends and family, but they probably don't have any more "extra cash" lying around than you do.

This is what a payday loan does. Let's say your weekly wage is £400. You only have £100 in the bank, but you need £200 to pay the auto repair shop or you're not going to have transportation to and from work this week. You get paid on Friday, but that doesn't help you much now. So you look up a reputable payday lender and walk in with proof of your wages and your identification in one hand and a chequebook in the other.

The payday lender will consult your proof of income, see that you make £400 a week (and therefore can easily afford to give them £100) and write you a cheque for the £100. You'll write them a cheque for the same amount plus a small fee, which they'll hold until payday. You pick up your car today, they deposit your cheque on Friday, and everyone's happy.

The dangerous part of payday loans is that people don't always think ahead before they borrow. There are certain things you need to do with your wages. Eat, for example! If you owe all of your income to a payday lender you're not going to have any money to see you through until the next payday. Many lenders will give you the chance to take out another payday loan when this happens...and another...and another. The cycle will continue until you've paid hundreds of pounds worth of fees to the payday lender, which is money that could indubitably have been put to better use somewhere else.

To answer the question no, payday loans themselves aren't dangerous. It's the cycles they begin that can cause a problem. That's why it's incredibly important to borrow judiciously when borrowing from a professional payday lender.