Much more is needed to be done to educate people about the risks and costs of payday loans. While they may provide people with a fast and easy way to get money, some payday loan providers are offering loans with interest rates of up to 47 per cent.
The problem with payday loans is that they can be sourced online. So while it is convenient to source funds this way, most people do not understand the real costs of taking out this type of loan. There are many instances of people who receive payday loan funds and within a short time of receiving the money, are then offered the ability to borrow more money sending them into a vicious spiral of debt.
Not only do some providers charge really high annual percentage rates, they also charge establishment fees and then impose hefty fees and other charges. And because many payday loan providers are online, it is near impossible to contact anyone to discuss issues when you get in to trouble or need help.
The added danger is that every time someone applies for a payday loan, the loan provider checks the person’s credit score. Payday loans are often used by people in financial distress. Every time a person’s credit score is checked, this history is visible to other lenders and can affect a person’s credit rating. This can become a huge issue and can effectively lock people out of mainstream finance for the rest of their lives.
Digital Finance Analytics recently reported that online payday lenders have led to an explosion in short-term loans to Australians in financial distress, with the industry now on track to pass $1 billion for the first time in 2018. In addition, payday loans have also become really popular among the 24 – 35 year old age bracket because they have grown up with the internet and are comfortable transacting online.
That is one of the reasons why I established You’re Welcome Finance, so we could offer the market an online and convenient means to access money quickly in the form of traditional personal loans.
A lot of people think traditional personal loans involve a slow process and years ago they did. Today, using the latest technology, loan applications can be quickly processed and the funds sent faster for people, particularly young people, who are often given a hard time by banks and other financial institutions. Personal loan rates are much more affordable and generally don’t involve the high costs that payday loans include.
My advice to people is to look at personal loans instead of payday loans. Today’s personal loans are convenient flexible products which involve much lower interest rates than payday loans and are usually provided by lenders who are interested in building a relationship, not just sending you into debt.
David Lennon, Founder, You’re Welcome Finance
