Financially Unstable Position
Short term cash loans are becoming increasingly popular among people who are looking for ways to access funds in an emergency, but there are a lot of issues with this kind of borrowing. Usually, short term cash loans are aimed at people with very poor credit ratings – those who cannot access an overdraft or a more mainstream bank account. The problem with this kind of borrowing is that it is very high interest, and this means that it is likely that the borrower will struggle to pay it back.
The kind of person who needs to access a short term credit facility is probably someone who is in a financially unstable position. They do not have a lot of savings, and their credit rating is not good. This means that they are likely to struggle with paying anything beyond their day-to-day regular outgoings, so being hit with a loan repayment – plus a very high APR interest rate – is hardly ideal.
The lenders have to charge these interest rates because they know that the borrowers are likely to default. However, this interest rate situation has created problems where borrowers tend to roll over their loans repeatedly, borrowing more and more each month until they are unable to afford the repayments at all. Some borrowers even end up with multiple loans with different companies.
This has caused some people to campaign against the services being offered – because it is something that causes financial ruin for those who do not use it responsibly. However, it is important to note that people who are responsible with their loans can actually benefit from such a service. If someone is living from one pay slip to the next, and then their car breaks down, they need to be able to access credit to repair their car to be able to get to work – otherwise they really will be in a bad financial situation. For them, having access to a short term, high interest for of borrowing is a lifeline, and they really will benefit from it.
Used responsibly cash loans over a period of days or weeks can be very valuable. The challenge, for some, is resisting the temptation to use them for discretionary spending – especially given how attractive and persuasive the marketing that the companies use can be to those in need.