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Pay day loans business

 

Payday Loans Business:

The finance industry has witnessed a wide spectrum of changes in the last few decades. The emergence of new forms of credit like credit cards, home equity loans, payday loans has raised the use of debt by consumers and they remain indebted lifelong. Payday Loans Business are just like adding another feather to financial credit market. When you hold a bank account, a credit/debit card, remember another part of planet remains unbanked. They may be below poverty line, they miss out the convenience, security opportunities of wealth building.

A payday loan means a short term loan secured by post dated cheque. It is also known as deferred deposit advances. For example, a person borrows for Rs 1000 and gives the lender a post dated cheque for Rs 1015. The cheque amount includes the principal amount and interest accrued. On the maturity of due date, the lender can submit the cheque to the bank and get it discounted. In case if the borrower has no sufficient balance, he can refinance the loan by paying additional fee to the lender. The borrowers can rollover for three times. Payday loans are legal only in some countries.

Payday loans has always been a topic for discussion. Social workers argue that payday lending is a profit making business to lenders. The users of payday loans are always in debt,as each loan is taken to repay the previous one. The costs of payday loans are interest rate and transaction cost. The Center for Responsible Lending has advocated that pay loan lenders are not supposed to lead more than four times to consumers and the term should be 90 days. Sometimes the lenders associate third parties to collect cash.

Risk to Lenders:

Consumers' credit worthiness

Consumers' bad credit history and low credit limit is a threat to lenders.

Insufficient funds in borrower's account leads bouncing of cheques.

Agents or consumers may misrepresent information

Written offsite

Risk to Borrowers:

Debt Trap

High interest rate and transaction cost

Time value of money is not understood

Guidelines to pay loan lenders:

Accurate Information: Banks are advocated to furnish accurate information n fiancÚ

charges levies on payday loans.

Discrimination: Banks which lend both payday and other short term loans are requested to discriminate potential consumers on fair basis.

Notice to Consumers: The bank which is engaged directly or indirectly in pay loan lending is required to furnish details why a certain application for credit is rejected.

Fair Collection practices: If a bank engages a third party to collect the debts, the bank should ensure that collecting agents ensures fair practices in case of default of debt payment by customers.

Privacy: The privacy of consumers should not be disturbed at any cost.

Safeguarding Information: The customer information should be safeguarded and should not be used for any other matter that is not stipulated.

Guidelines to pay loan borrowers:

Banks payday loan lending schemes need to carefully analysed

Bad credit ruins the business,so keep an eye on consumers' credit worthiness.

If third parties are engaged for credit collection, their trust worthiness need to be analyzed

Keep check on bad credits

Keep an eye on information provided by customers because misrepresentation is a major fraud played in Payday Loans Business.

Make sure a written contract is duly signed by both parties

You can borrow from your family or friends.

The finance charges on other forms of credit should be studied

Ask for more time to pay bills. Find out the charges on late pay.

Make sure you will have enough funds in your account when you give postdated cheques

Borrow the amount considering your future income

We can conclude saying payday loans=costly case

 

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