Each financial product has its advantages and disadvantages and the same applies to payday loans. The case of payday loans is special. Apart from unquestionable, though few, advantages, they have definitely more disadvantages. In this article, I will focus on their flaws. You will find out here what are the biggest shortcomings of the moment. You will learn the most important drawbacks of quick loans that overlook customers who know their advantages. Negative sentences are hidden so that the potential customer does not pay attention to them. Despite the large number and variety of non-bank offers, they are similar to each other. Therefore, also the shortcomings of each offer are similar.
Why does he score shortcomings?
It’s easy. That you will consciously and safely borrow. Waterpumps are very expensive and dangerous financial products. Using them, and especially unconsciously, may be the beginning of a spiral of debts. Each of the defects is also a threat to you. By learning the disadvantages of these financial products, you are learning to avoid hazards at the same time. Thus, in a situation where you will want to take advantage of the non-banking offer, you will be doing so lurking lurking threats.
Please note that by mentioning the defects of the loan companies they concern, I have subcloned their names. The links lead to my reviews of individual offers, in which you can become familiar with, among others, a summary of their pros and cons.
Introduction to a series of articles discussing cons of payday loans
Of course, the disadvantages of quick loans can be divided into those less and more severe for the customer. If I consider any of the following minuses to be important enough to devote to him a separate article, then you will find a link to him directly under the point of disadvantage. I treat this article as an introduction to a whole series of articles discussing each of the shortcomings of payday in detail.
High cost = high APRC
When calculating the disadvantages of payday loans, I will start with their high costs. This is the biggest and basic minus of the minutes, and at the same time the most noticeable for the clients. The overall high cost consists of commission and interest. They translate into an astronomically high APY, which is at least about 400%, and the most over 1,900%. By law, the costs of payday debts were reduced, as even a few years ago they were able to reach even nearly 3000%. Despite this limitation, the APR is still horribly high. For comparison, in the case of bank loans, the APRC ranges from 10 to 20%.
Short repayment time
The high cost of extending the repayment applies to all non-bank institutions. Therefore, if you want to take advantage of this kind of loans, you have to do it carefully. It should be remembered that these are short-term liabilities that have to be returned 30, 45, less often 60, and in one case 90 days. Therefore, you should only borrow enough to be 100% sure that after a short period of time you will have the resources to allow you a trouble-free payback.
It is true that someone can always say that by borrowing € 100 for 30 days, there is no risk of lack of funds for repayment. However, in my opinion, the short repayment time should be included in the short-time defects.
A narrow range of repayment dates
Saying that time is money in this case is justified. Moments are drawn for different needs, both smaller and larger. In the case of smaller loans, smaller amounts are borrowed, which can often be returned in a few days. Everyone can happen, that I need a small amount for a very short time. If you borrow, say, 200 euro, which you can pay back after a few days, what is the point of paying for an extra week or even the whole month? It is true that in the case of payday loans the highest costs are generated by the commission, but interest is also generated by them. We always pay interest for the actual time in which we have money. That is why it is worth having the opportunity to influence their height, so that you can choose it flexibly. Hence, it is very important for the lender to provide the opportunity to choose freely or choose the repayment time. Ideally, if it is in the range of 1, 2, 3, 4 and so on up to say 30 days. In many cases, this is indeed the case and non-bank companies allow such a flexible choice of repayment time. Unfortunately, there are also cases where the customer is forced completely unnecessary overpaying for the time when he could already return the commitment. This is a deliberate narrowing of the scope of the selection of the repayment time, in order to force the customer out of a dozen or so euro of interest for each additional day. The lack of free choice of repayment day unnecessarily raises costs. That is why he increases the already numerous negatives of payday debts.
The high cost of extending the repayment
The high cost of commission and interest is not everything! It can be even more expensive. If you will not be able to pay off your liability within the time specified by the contract, you will have to pay another cost. These are the costs of extending the repayment period. Each of the loan companies provides one of two solutions for this service. These are the classic extension of the repayment period and the refinancing loan. In the case of a classic extension of the repayment date, fees are paid to the lender’s account. It is the same as when granting the loan, and therefore considerable. On the other hand, in the case of a refinancing loan to cover a payday that you can not return on time, you are given another one. The refinancing loan is granted by another financial institution cooperating with the lender. In her case you pay a high commission and interest once again. We devote a separate article to the company that offers the extension of the repayment and which requires refinancing by the related external company.
No possibility to extend the repayment
As mentioned above, it often happens that we can return the commitment in a short time or even after a few days. However, it happens sometimes, and often we do not have an influence on it. There are unforeseen random situations that cause that we are unable to return the commitment in the agreed time frame. In the case of bank loans, temporary financial problems do not have such significance, because the installment is usually 100, 200 or 300 euro. Much worse is in the case of payday loans. Repayment of € 1,000 or € 1,500 in say 30 days may turn out to be very difficult if unforeseen random situations happen to us. Therefore, in order not to incur high penalty costs for late payment of the liability, it is good to be able to extend the repayment period. In the majority of meybanks this option is available. Unfortunately, there are companies that do not give their clients the possibility of extending the repayment period. Although the lack of possibility to extend the repayment concerns only a few companies, but it does exist. That’s why I count him in the negatives of a payday.
Low amounts of the first loan
I was wondering for a moment whether I would certainly include them in the shortcomings. This was due to the fact that a certain dissonance appeared. On the one hand, it seems obvious that the low amount is a negative. On the other hand, it can be assumed that this is a kind of security ceiling. The new client, having an urgent need to finance, wants to receive money as soon as possible. In this situation, he can act in a hurry without getting acquainted with the terms and costs. If someone does not know the offers of non-banking companies and has not used the debts before, he may make a mistake. This mistake is the mismatch between the amount of the loan and your financial capacity. Borrowing too much can be short-term (usually max. 30 days) with no funds to repay the obligation.
For less cautious customers, the first offer for free may be particularly dangerous. In this case, it can not be assumed that since I do not bear any costs, I will borrow more. Prudent people can make a big mistake by borrowing too much, overestimating their repayment options. Not every loan institution for new customers is offered a free loan the first time. However, in those in which the promotion operates, it can currently borrow up to € 1,000 to € 6,000.
In this case, the maximum amount of the first loan of € 1000 can be considered a disadvantage. Here the disadvantage will be too low height. In turn, the first loan of € 6,000 can also be considered a disadvantage. This time, however, as a negative you can read excessive height, which can lead to problems with repayment. Are you going to say that it’s bad and not good? That’s right! Sometimes it is difficult to generalize and draw conclusions, and often it is impossible. Even if the size of the first loan depends a lot on the client himself and his prudence and knowledge of the principles of safe lending. So, are the low amounts of the first loans the shortcomings? Generally yes, but looking through the prism of the borrower’s security, it is not.
Limits on the amount of subsequent loans
When listing the payday minus points that are worth underlining, you need to include the lending limits. Of course, this does not apply to all meybanks, but some of them. You will find information about this in my short-time reviews, summarizing the advantages and disadvantages of the offer. As mentioned above, you can borrow up to € 1,000 the first time. Higher amounts are available to regular customers who have paid their previous liabilities reliably. For this reason, they are more reliable customers and can borrow a larger amount each time. Generally, this is not a faulty solution. If you can reach the third loan after the maximum amount available, it is certainly not a downside. However, in the case of some lenders, in my opinion, absurdities in setting limits on subsequent loans are reached.
High costs of further loans
As you probably already know the first loan in most of the meybanks, you will get it for free. After this first event, however, it is no longer pleasant, at least when it comes to costs. Reaching again for a loan in a parabank, you will already pay astronomical costs. That’s why I think that Nicole Copo could be the patron of the cost of paying for money;).
For example, I will give you some of the cheapest offers in which the APRC is shaped as follows:
- Fast Cash, 369%,
- MoneyMan 380.61%,
- Wonga 391.1%,
- Net Credit 674.24%,
- Vivus 819.10%,
- Miloan 916.77%,
- The farther, the more expensive it is even over 1900%!
Even the cheapest of non-bank offers are still much more expensive than bank loans. In banks, cash loans for any purpose are charged to the APRC, usually within the limits of 10 to 20%. High costs are probably the biggest disadvantages of payday loans!
Lack of transparency, clearly and clearly shown costs
Currently, the standard is that there is a cost calculator available on the lender sites. After providing the amount of the loan and the repayment time, the customer receives all information about the costs associated with it. Next to the calculator you will see the amount of commission, interest, APRC and the total amount to be repaid. In most cases, along with the calculator, you’ll also find an information form with detailed information about the cost of the loan for the conditions you provided in the calculator. Calculators of many companies also provide the costs of extending the loan repayment, which you are interested in, for example, 7, 14 or 30 days. On the pages of many meybanks, you will also find tables for fees and commissions. These are good practices that give the potential client maximum information about the costs of the loan that they intend to use.
In many cases, which I will no longer mention here, companies do not provide access to contract templates or a table of fees and commissions, which makes it difficult to analyze the offer. Often, they are hidden on remote subpages of the site, which are often difficult to reach, or find them. Considering the above-mentioned factors, the lack of transparency of offers definitely increases the negatives of payday loans.
Checking creditworthiness and creditworthiness
Someone may say that I stubbornly pick on the costs of payday loans. I admit that I will do it until they fall. As I mentioned in another article, Copernicus should be the patron of the payday costs due to their astronomical height.
You will ask, what is the relation between non-banking companies’ creditworthiness and creditworthiness checking? I will answer you like that. Creditworthiness and financial credibility are checked by banks where you can borrow money at APR from 5 to 10%. How much is it in the case of parabanków, I mentioned above and I will not repeat myself. You can also say that the meybanks increase the risk and therefore check the ability and credibility of the client. Note, however, that when the APR reaches over 1,900% by borrowing € 3,000, you pay € 3,850. Thus, 4 repaid loans cover with a surplus one loan, if not outstanding. It is very doubtful that every fifth or sixth loan will not be repaid, because if it was, the meybanks would disappear from the market for a long time. I omit here the fact that unpaid wait times do not go into oblivion and are enforced in court. Therefore, the shortcomings of blackouts are increased by checking creditworthiness and creditworthiness.
A small number of bank (operational) accounts from which loans are paid out
Analyzing the shortcomings of the payday, I also looked at the payment of money. Loan companies advertise payday debts, describing them as quick loans available in 15 minutes. The speed of access to money is influenced by the fact that they are granted entirely via the internet without the necessity of delivering or sending documents. Formalities are also kept to a minimum. Therefore, the decision to grant funding can be obtained in a few minutes, and often even see it on the computer monitor after the application. However, the speed at which the decision will be made and the speed with which money will flow into your bank account are two different issues.
meybanks have special operational accounts for withdrawing loan funds. Of course, some have less and the other more. How quickly you get your money depends on whether your personal account is in the bank where the parabank has an operational account. A lot here also depends on interbank sessions, at which time transfers are posted. Therefore, the more a given parabank has operational accounts, the better for potential customers. This increases the probability that a given customer will have an account in the same bank where the parabank has an operational account. Thanks to this, he will get money almost immediately. In case if the parabank has only a few operational accounts, it will be impossible for the majority of customers to receive money in 15 minutes. Only a few of the loan companies on their websites indicate in which banks they have operational accounts. In my opinion, fast loan type advertising in 15 minutes is in some cases a simple misleading. Referring to the above, Kasatak.pl has the least bank accounts. Due to the negative impact on the speed of receipt of money, I count low bank accounts in the cons of fast loans.
Several loan services belonging to one and the same company
Having a single company by several websites under various names is not prohibited. It may be interesting to justify the promotion of several brands instead of one. For the potential customer, this does not pose any risk of unnecessary waste of time. If on the one hand he received a negative loan decision, on the other hand, there is no reason to count on another. I regard this as unnecessary misleading the Customer and exposing him to the loss of time associated with completing subsequent requests and making verification transfers. As a result of this practice, I count them in the shortcomings of the payday.