Are short term loans a boon or do they prey on the hard-pressed?

Payday loans have sparked controversy lately, with detractors saying they prey on those hard-pressed to make ends meet, while others insist that they provide a valuable service to those in need of emergency cash through short term loans.

Major campaigns have been launched to limit the scope and ability of quick loans.  Walthamstow Labour MP, Stella Creasy, is at the head of the movement, stating that she has seen how these loans can rapidly contribute to higher levels of financial distress amongst her constituents.

However, proponents of the loans say that people should get the complete facts about how they work before condemning them.  Many will point to the incredibly high APRs on these loans as one of the main reasons for damning them, as many have eye-watering figures such as 3,000 per cent, yet there are other ways to consider it.

Imagine a situation where you have five days until your next payday, but you encounter an emergency that requires cash to resolve.  Going into the red on your bank account could result in incurring daily charges which could quickly balloon quite high, especially if a direct debit or standing order is turned down as a result.

Meanwhile, short term loans may charge you £20 on a loan of £100, but this fee could be much less costly than using even an unauthorised overdraft or similar facility.  Then, when your next payday arrives, you can repay the debt and go along your merry way.

However, exceeding the term on the loan without repayment can result in fees of their own, so consumers must be aware of such dangers.

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