A payday loan may seem like a lifesaver Loans for poor credit , but high fees and short payment terms can lead to a long cycle of debt.

These loans are spread and have online applications and services, and Google recently banned applications that charge an interest rate of more than 36 percent.

 

What is a payday loan?

A payday loan is a short-term loan of a small amount, usually $500 or less, that is usually due on your next payday along with fees or an interest rate.

Payday loans provide quick cash payments that can help you reach your next paycheck, but these loans come with higher fees and interest rates, which can lead to a “debt trap” for borrowers.

These loans may be marketed as a way to bridge the gap between paychecks or to help with an unexpected expense, but the Consumer Financial Protection Bureau says payday loans can become “debt traps.”

The cash can be reached within 60 minutes, this speed can give the impression to borrowers that getting loans is easy and they are reluctant to address their problem.

Disadvantages of a payday loan

Many borrowers cannot pay the loan and the fees, and therefore end up paying more fees frequently to delay having to repay, “roll over” the loan, or refinance the debt until the fees are paid more than the amount they borrowed in the first place.

The annual interest rate on payday loans is 540% or more, and by comparison the steepest interest rate fees on credit card loans are around 40% per year.

It is one of the dangerous and common loans that enters one into an endless cycle of borrowing, and one is usually sad, melancholy and lacking in desire, as he lives in a war against God.

Pew Charitable Trusts estimate that 12 million Americans take out payday loans, and pay about $9 billion in loan fees. Borrowers typically get about $30,000 a year, many of whom struggle to make ends meet.

Experts consider that these loans are designed to be profitable by those who issue them, so they are notorious in the eyes of many insiders as well.

How does a payday loan work?

Loans for poor credit under different names: cash advances, deferred deposit loans, or post-dated check loans, but they usually work the same way.

For a payday loan, you may need to write a post-dated check made to the lender for the full amount, plus any fees, or you can authorise the lender to debit your bank account electronically.

The loan is usually due the next payday, usually within two to four weeks. If you don’t pay off the loan plus fees by the due date, the lender can cash the check or debit your account electronically.

Many states that allow this type of lending set a maximum loan amount and associated fees. Depending on the state, businesses may be allowed to charge fees from $10 to $30 for every $100 borrowed.

There are some restrictions imposed by these services and financial regulators and this is to prevent the use of loans for illegal businesses or market manipulation.

The difference between a good loan and an interest-based loan

There are two types of loans, the good loan and the interest-based loan, the latter being the most common and most widespread of all.

Over the ages and since the emergence of money and money, borrowing and debts appeared, and it became a legal financial activity in all societies.

But the heavenly religions and hundreds of prophets fought usury, or what is called today the interest rate, and the Creator, the Mighty and Sublime, considered the usurious loan unjustly acceptable.

The good loan does not contain usury or profit for the party that issues it

If you decide to borrow $1,000 from someone, he must return the same amount to you, without an increase or decrease and without a material gift with him, this is a good loan.

The entity that issues this loan will not benefit financially from this process, but humanely, this transaction reflects the sophistication of the entity or person who does this, and religiously there is a great reward in this transaction.

God promises blessing in the money of the entity that issued the loan, while helping the borrower to settle his affairs without being stifled by the interest rate.

It is a neat and clean transaction, and the bank in this case does not profit anything and that is why the profit-seeking banking system around the world does not believe in this transaction.

Few of the associations and institutions issue these loans, but they ask for guarantees and study the applications and do not agree to most of them, as they stipulate conditions among them that the amount that will be borrowed be dedicated to something very important, so good consumer loans are few or rare.

Interest-based loan

If you decide to borrow a person $1,000, he must return the amount to you later with an additional amount, which is the interest, to be determined by the authority that issues the loan.

If a person is self-employed, he will provide loans at higher interest rates than the bank, but if it is a banking institution, it will abide by the interest rates set by the central bank.

The borrower in this case has to return the loan amount with the interest on top of it, and this is a great injustice to him because he took $1,000 and asked him to return $1,100.

The entity that provided the loan seeks in this transaction to make a profit, and considers it a fair investment to give a person a sum of money and return it to you, which is greater than the previous one.

The bank or the person in this case increases its capital without getting tired and without making any effort, to become richer, while the money is withdrawn from the borrowers to shift the balance in favour of the rich and wealthy.

The good loan helps the development of a healthy society

In a society free of usurious loans, there is greater justice in the distribution of wealth, and those who wish to make profits have to invest, trade and work, not by exploiting the weakness of others.

Relationships in this society are good, especially between social classes, unlike our societies where hostility increases between the poor and the rich.

The poor in this society feel supported by the rich and lenient in obtaining loans, and the wealthy class proves that they do not really exploit the weak.

In addition, there are greater opportunities for people to be lifted out of poverty and for the rise of more new rich people.

The usurious loan destroys societies

On the contrary, in societies where people deal in usury, most people act like wolves and do not care about each other’s misfortunes.

The poor hate the rich and the rich and accuse them of defrauding and taking advantage of their poverty and exploiting their tragedies, and the general public believes a lot in conspiracy theories.

On the other hand, financial and economic crises, poverty and related manifestations such as drought and high prices find their way into this society.

Throughout history, usury was enough to cause high prices to erupt in the country and spread the economic crisis, and God threatened those involved with painful punishment and severe war, to the extent that he considered insisting on it as blasphemy.

Why cut interest rates globally and is it a correct decision?

The US Central Bank is heading this month to cut interest rates, as it believes that it is time to move in this direction, in contrast to the previous trend towards raising them.

In fact, this trend is consistent with the demands of Donald Trump in the United States and his counterpart Recep Tayyip Erdogan in Turkey, and with China’s devaluation of its currency and Europe’s conviction of the need to reduce interest rates and its readiness for new fiscal stimulus.

All this happens while central banks are supposed to race to raise interest rates, push companies and factories to repay debts, reduce borrowing activities and take advantage of the strong global economic situation.

Reasons for lowering interest rates globally

The economic data over the past months has been somewhat worrying, especially in China, Europe, and recently on more than one level in the United States of America.

Experts predict that the slowdown of the American and global economy will begin soon, and with China achieving its lowest growth in 30 years and Italy entering an economic recession and the spread of expectations that indicate a decline in growth, central banks have found that further interest rate hikes will pose a risk to a system built on low interest rates and printing money.

The trade war between China and the United States of America is an additional reason that threatens the two countries with a decline in economic growth and trade activities as a whole.

With the reduction of interest rates, the dollar and various currencies are expected to decline, and this opens the door to greater trade exchange and stronger competition.

What is the purpose of lowering interest rates globally?

With all these risks surrounding the global economy, interest rates are an effective monetary tool in the global financial system.

Reducing interest rates will push companies to borrow money and buy back their shares, which makes us face the continuation of the stock market bubble to new levels. Dow Jones, for example, scored 27,000 points for the first time in days, on optimism to cut interest rates.

Borrowing activity will grow again on many levels, including commercial and even at the level of individuals, which increases consumption and revives global trade, and pushes investors and entrepreneurs to invest and expand.

Doing this step means that the central banks will print money and flood the markets with liquidity, so that banks and financial institutions will be lenient in granting loans.

Lowering interest can help consumers save money by lowering interest payments on certain types of financing tied to primary or other rates, which tend to move in tandem with the Fed’s target rate.

The reasons for declining interest rates are not convincing

The Commerce Department reported that retail sales rose 0.4% in June from May, which was better than economists had expected by 0.1%, and would have been stronger had it not been for the 2.8% decline in gas station sales due to lower fuel prices.

Consumer spending now appears to have grown at an annual rate of 4.3% in the second quarter, according to forecasting firm Macroeconomic Advisers, making it the fastest growth since 2014.

Meanwhile, the Federal Reserve announced that manufacturing production rose 0.4% in June from May and this eased concerns of factories facing trade uncertainty and weakness abroad.

In the strong June jobs report and the recent consensus on US-China trade and the stock market recently hitting new records, it is hard to buy into the US central bank’s decision.

The interest rate cut now looks out of proportion to what the Fed has done in the past, financial markets certainly don’t look like they are in any sort of distress and the US jobs machine hasn’t started to falter.