Payday loans are a money community that offers cash to the people in need fast but for those who have no bank account the payday loans have some challenges and risks. To better understand, let's look deeply inside into the following categories.
Few Choices
Most payday lenders need applicants to have checking accounts for both deposit and repayment to be completed.
While there are some lenders who may be willing to use check cashing or cash loans to collect the payment they are generally more difficult to find and more expensive.
Other Lenders
Some of the unbanked targeted lenders shift and offer paycheck secured or cash transaction based loans.
Local NGOs, and credit unions could provide such small, short term loans without the need for a bank account and were likely to do so at lower interest rates.
Documentation Needs
Efficient gathering of documents such as income proof and identification especially may prove very hard for unbanked borrowers. Credit grantors usually demand this information in order to determine credit risk.
Highly expensive
In most cases, payday loans have very high interest rates and fees which tends to be disastrous to working class people with no any form of savings.
Payday loans have a high average annual percentage rate (APR), which ranges above 400%, thus, it becomes very hard to pay it back, moreover, that involves a debt cycle.
Cycle of Debt
When repayment approaches, borrowers end up seriously considering incurring other debts as a means of paying back the proceeded debts. This may lead to a position that the borrower becomes stuck with the loan and can never be able to clear the interests.
Aggressive Behaviours
There are some methods of lenders’ work which can be really critical, such as shocking slogans in advertising and the use of peoples’ despair.
The lack of regulation in some spheres may cause loan companies to impose such things as unfair interest rates and concealed charges
Insufficient Knowledge of Finance
Because of the growing number of the unbanked population, many people have limited access to knowledge about financial resources, making it difficult for them to understand the significance of payday loans or other appropriate products and services.
Effect on Credit
However, most payday loan lenders do not credit-check their borrowers, and if a client is unable to meet the repayment dates, they can be collected – and this will be bad for the credit scores.
Unions for Credit
Community Initiatives
Debit cards that are prepaid
Plans for Payment
For the unbanked population, payday loans can be used for accessing credit quickly. The flip side of payday loans are numerous risks and costs. People must look for other ways and look for financial literacy products. This way, the unbanked users get a full picture of borrowing, and the repurchasing of community support, which can facilitate their financial improvement.
DEV-AASHISH CAPITALS PRIVATE LIMITED is a Non Banking Finance Company (NBFC) registered with the Reserve Bank of India (RBI). RUPEE112 is the brand name under which the company conducts its lending operations and specialize in meeting customer's instant financial needs.
