Lots of people who have never had to use a payday loan often think that they are an abomination, and equivalent to legal loan sharking. This is not a wholly unreasonable position, as they certainly do at least appear to have two of the main characteristics that the loans made by real loan sharks have. That is, they are unsecured, and the interest rates appear to be high. But is the label of loan shark for a lender offering fast payday loans really a fair one?

Unsecured Loan

The practice of making unsecured loans is a common one, and institutions that anyone would consider as legitimate also make them, for example banks. Indeed for a loan to be unsecured is actually a good thing for the borrower because it means they risk losing nothing if they do not repay.

With the vast majority of real loan sharks though, their loans are not secured in terms of property perhaps, but they do have another way of making sure they are paid. That is, they threaten the borrower with violence if they fail to repay the loan on time, after all they wouldn’t be much of a shark if they were non-violent. Of course a payday lender would never threaten their borrowers with any sort of violence.

The reason that a payday loan is unsecured is because that makes it easier to actually make the loan, and means that it can be made quickly. This is a very important feature of the loan, and what makes it valuable to many people.

High Rates Of Interest

To say that the top of a sky scraper is high up is to compare it other sorts of buildings. If you compared it to a mountain or the moon, then it would not be considered high. In the same way, you can only say that interest rates are high for pay day loans when you compare them with other kinds. The normal tool of comparison between loans is the annual percentage rate.

When you look at the APR of a payday loan, you will see that it certainly is a lot higher than the normal sort of rate for long term loans. This only makes sense though, because if you are actually going to charge about the same amount in interest, then a short term loan is going to have to charge more over any predetermined length of time.

All legitimate payday lenders make it abundantly clear that the loan has to be repaid from your month’s salary. In fact the ones that might like to hide that fact would be tripped up by the very name of the loan. When you do actually look at the amount of interest charged overall though, looking back at how much interest you paid for a pay day loan, and how much you paid for a bank loan, the amounts will be very similar. So looking at it in the right context, interest charges are not actually high for payday loans.

Is Payday Finance Fair?

What all of this has been leading up to is the basic question of whether a pay day loan is fair or not. The fact that it is unsecured certainly does not make it unfair, as the security is something a lender will often ask for and having it unsecured actually makes the deal more risky for the lender. And as we have seen, the interest rates only become high if you do not repay on time.

What characterises fairness more than anything else though, perhaps, is consistency. If a lender is going to charge more to people who they think can afford to pay more would not be fair for instance. Or to indiscriminately change the amount that has to be paid, so that it is more than was agreed to would not be fair. Of course this describes things which loan sharks will often do.

Nobody ever accuses legitimate payday lenders of anything like that though. In fact there are very few that even have any hidden charges any more, most are very upfront and clear about exactly how much you have to pay. Of course you should always be careful about the company you choose, and you should always read the small print as well.

The best rates for payday loans are at http://www.fastpayday.co.uk, the place Evan Pritchard can also be found writing at.