Making the installment loan into payday loans would help borrowers with low income to avoid falling into a large debt. This would enable them from avoiding borrowing the money again. If this recommendation made by the banks passes, it would greatly reduce the danger which payday loan possesses. The installment loan would fill and reduce the gap which the pay loans make up in the repaying process.
Installment loans
Installment loans are not risky. These are the loans which are paid over some specified period and resembles the paying of a mortgage. These installment loans can act as a stand by for the payday loans. These short-term loans have a very high rate of interest which usually varies at 25% or maybe even higher. The advantage that the installment loans have over the payday loans is that the payday loans must be paid within the specified time whereas the installment loan can be paid over a course of weeks, months or even years.
Risk for the borrowers
The high rate of interest charged in payday installment loans require the borrowers to pay more than the original amount which they borrowed from them. Mostly people who have low income are targeted in this and they must pay huge money as interest. The interest keeps borrowers under the burden of it for which the loan must be paid. For example, if the loan is for a period of 30 days, the borrowers are supposed to pay money for more than this time limit.
Risk related to installment loans
There is a possibility that the installment loans may see a steep rise seeing the increasing restrictions in the payday loans with time. There are almost 11 states in India which do not charge any rate of interest on small loans. Therefore, there are high chances of possibility that there would be a meteoric level of increase in the installment loans in these states.
Conclusion
There are some companies and advocates who support the payday loans while saying that the high rate of interest being charged by them is necessary. However, you must do all the math before applying for any loan. It is necessary that you research about it as a bad loan could have a negative impact on your credit and it could also restrict your availability for the loans that come with a good and affordable interest rate.
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