While the portents of economic gloom often darken the vast majority of job markets and industries at one time or another, some remain able to prosper in even the most trying of financial circumstances. After it was announced this week that payday loan company Ferratum anticipated huge growth during 2012 and 2013, it became clear that high unemployment and poor job security would in no way hinder the brand’s operation over the next 18 months. Yet this is contrary to all perceptions of the payday loan, and more specifically the debt it can encumber citizens with during a recession.
What is a Payday Loan?
For those who are not familiar with payday loans, they are short-term financial agreements that allow consumers to borrow money while they are waiting for their next pay cheque. There are not many stipulations for potential consumers, except for the fact that they must be in some form of employment and in many cases cannot borrow more than £1000. Often the terms of the loan demand that the money must be repaid in full within a calendar month of the agreement, with a regulated level of interest heaped on top for good measure.
On the face of it payday loans sound like practical solutions for those suffering from reduced cash flow, and this should indeed be the case so long as consumers use them sporadically and only borrow sums that they are able to repay comfortably. When surrounded by the ill winds of an unstable economy however, these agreements can suddenly seem as unflinchingly inflexible and ultimately serve to burden individuals and families with unwanted debt. So what exactly are the risks of a payday loan, and who should strive to avoid them at all costs?
The Perils of the Payday Loan
While those out of work cannot qualify for a payday loan and can rest easy, anyone in employment can secure a loan from one of the thousands of lenders throughout the UK. The primary issue with these loans is that they are likely to escalate if they are rolled over, and given the already perilous state of the economy this can trigger a cycle of extensive borrowing and debt accumulation. Consider the following:
- The short term nature of the agreement means that debts must be repaid promptly, and given the pressing nature of paying bills in a strained economy consumers are often forced to renew their loan agreement over a period of consecutive months.
- While this cycle of debt can be damaging enough, a missed payment can trigger extensive debt escalation in line with the exalted levels of interest affiliated with payday loans. These may range from 100 to 4000%, and can turn a small repayment into a significant debt.
- The current economy only serves to make the payday loan even more of a risk factor, especially for those in short term or long term temporary work. Even those employed on a permanent basis cannot be sure of their futures, and any sudden job loss or unpaid redundancy could force you to renege on your payday loan agreement.
Regardless of your needs or your confidence in being able to repay your payday loan, remember that the current economic climate makes it extremely difficult to follow even the most well laid of financial plans. While those in short term employment should avoid payday loans at all costs, even permanent employees should think twice before they commit to such a financial commitment at the current time.
