Emergency Payday Loans Can Cause a Real Crisis

They’re heavily promoted through the media. They’re widely available to the public. And their name, like so many dubious sources of financial aid, is misleadingly alluring. Emergency payday loans are often portrayed as a positive financial assistance option which fills a void in the credit market. In theory, they provide exact sums of money in a timely manner, thereby increasing ease of access to a source of capital that would have otherwise been beyond the means of the individual taking out the loan in question. However, payday loans bring additional costs that can be hard to handle when faced with repayment. It is strongly advised that you consider alternative options but should you choose to take out a payday loan, it’s important to know the implications of doing so, especially if it occurs as the result of an emergency.

There are a number of different payday loan services, but all typically grant quickly administered loans which are due on the recipient’s next payday. Each loan comes with an additional fee, which progressively increases depending on the incremental size of money borrowed. They also grow when extensions to loans are made, results in high charges which many clients are not able to afford (especially given that they were presumably in a financial state that was too precarious to withstand the effects of a personal emergency). Every time a payday loan recipient is unable to repay their loan by their next payday, the fee for the loan in question is compounded, increasing the total amount the lender will receive. Given that the recipient’s finances were already in bad shape before taking out a payday loan, it is troubling to think what they might be like once confronted with the costs of so-called assistance.

Emergency payday loans are particularly insidious in two ways. Firstly, they specifically target individuals who are unable to pay for inevitable expenses such as housing and medical costs. Secondly, emergency payday loan providers promote their businesses by encouraging clients to classify a wide range of expenses as “emergencies”, increasing the income that the lender accumulates while magnifying the loan recipient’s debt. Companies that offer emergency payday loans are aware that your financial circumstances are probably strained; after all, if you need immediate access to a sum of money odds are that your back-up resources and savings are not as robust as they ought to be. Knowing your desire for instant cash, they offer their loans but the costs that are attached will in all likelihood deplete your finances even further, putting you under greater fiscal pressure and placing your personal economic situation in greater jeopardy. Furthermore, although the laxity of regulations regarding what constitutes an “emergency” worthy of a loan may attract you, beware. If you are truly in dire straits you know what are your most serious and immediate needs, but using payday loans can easily create a sense of dependency which leads to use of payday loans to cover non-essential expenses. Many emergency payday loan websites openly assure you that they have no qualms about clients using their money to pay for objects such as shoes or clothes. Indeed, they stand to benefit from your use of their money, which should be minimized if not avoided altogether.

There are alternatives to emergency payday loans. Negotiating with your creditors can help temporarily alleviate immediate pressure to repay when struggling to cope with a major crisis. Creditors are more likely to cooperate if you’re honest, direct and consistent in your correspondence with them. You can also talk to an official at your local credit union, where you may be eligible for a small loan you can more realistically pay off. In conclusion, despite their name emergency payday loans are not a secure source of support in times of trouble but a financial option that is to be regarded warily.

Siddarth Nagaraj

Siddarth Nagaraj is a junior at the University of North Carolina-Chapel Hill. He is currently pursuing a double major in Global Studies and Political Science with a minor in Geography. Originally from Winston-Salem, North Carolina, he is interested in socioeconomic inequity and cultural diversity in developing nations. He is also a Section Editor for The Hill, UNC’s only nonpartisan political review, and has written multiple articles on international affairs for the quarterly publication.

Since the summer of 2010, he has volunteered as a Savings Officer for the Community Empowerment Fund (CEF) in Chapel Hill, which seeks to promote financial literacy and help fiscally strained individuals achieve self-sufficiency. Apart from writing, Siddarth enjoys reading, travel, and watching British television programs. Upon graduation, he plans to earn a graduate degree and seek employment in the field of international development.

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