Payday loan companies offer short-term loans at extortionately high interest rates for those seeking a quick fix for financial difficulty or desperately in need of money for some reason or another. The practice has understandably come under much controversy and criticism however, due to the unaffordable nature of the extremely high interest rates exercised. With the reputation of payday loans somewhat damaged, this article will explore whether the controversy – although understandable – is justifiable.

The Criticisms

Payday loan companies are known to offer interest rates of up to 2000%. This is in itself the main reason behind the scrutiny faced by payday loan companies, with the firms involved accused of fixing unaffordable interest rates upon desperate borrowers. The reality behind this needs to be told.

In 2010 the Archbishop of Canterbury called for payday loan company practices to be put under urgent review, in regards to the rates charged by doorstep lenders. Rowan also praised the work of Debt on our Doorstep, another group lobbying for action against payday loans.

Anger over internet short-term lenders has been somewhat prevalent over the past couple years in fact. Recently, Red and Black – the ITV show presented by Ant and Dec – faced a wave of criticism for being sponsored by payday loan firm Wonga. Under scrutiny for misleading and aggressive debt collection methods, Wonga were also the object of a protest campaign to prevent their services from being advertised by the English Football League. As a result of this campaign, Premier League and Football League clubs announced that they would no longer continue advertising for Wonga on their websites.

Of course, people should find a financial adviser if they don’t believe they are in a position to make important financial decisions on their own. The issue with this idea is that those who need financial advice the most simply cannot afford it. Financial advice is usually not available for less than £500. This keeps this invaluable service out of reach of most people who would normally be turning to PayDay loans to make ends meet.

The Opposing View

The criticisms against payday loan companies refuse to accept a simple reality behind the matter however: that those choosing to borrow off payday loan companies, do so at their own whim and do so – or at least ought to do so – in full awareness of the nature of their loan.

It is our responsibility to know the risks of payday loans, and indeed this enlightenment is made easier through payday loan companies being obliged to boldly advertise the interest rates on offer.

Most payday loan borrowers are aware of the risks involved with payday loans and one must therefore ask why they would then choose to go down such a route. The answer is simple.

Desperate times call for desperate measures, and people who choose to borrow off payday loan firms do so out of desperation. Indeed the only other alternative for many of these people is to suffer due to their debt or borrow off a loan shark. While borrowing off payday loan firms may not be ideal, when put alongside extreme financial difficulty or loan sharks, I know which route I’d rather go down!

Speaking of loan sharks, the differences between these and payday firms must be emphasised, as the two have wrongly been put in the same basket by a number of critics.

Loan sharks operate outside of legal confinements and use horrid techniques such as the threat of physical or sexual violence to ensure repayment. Payday firms are nothing like loan sharks, and if anything they reduce the prevalence of loan sharks through giving people a legal and safer alternative.

The controversy and criticism surrounding payday loan companies is understandable.

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