Payday loans

Have you ever heard of the concept Payday Loans? If not, don’t waorry, because that means you have never come into contact with them, which is a very good thing! Until recently, I didn’t know what they were, but then all of a sudden they were all over Dutch press.

A Payday Loan, is a small loan that’s granted as an advance on one’s next payday (hence the name), for people who don’t have enough money left at the end of the month. After their next paycheck, they are required to pay the loan off in a short time (usually about 21 days). It sounds innocent enough, but beware, cause it is far from innocent.

First of all, Payday Loans charge outrageous amounts of interest, like 20 Euro’s on a loan of 100 Euro’s. This means a 20% percent interest rate for just that period, but an APR of hundreds of percents. You must be pretty desperate for cash if you’re willing to pay that amount of money. Which brings me to the next danger of payday loans: they’re used by people who can basically not afford them. If they could, they wouldn’t be needing a payday loan in the first place, right? Besides, with so many loan sharks on the market, it’s quite possible to pay of your loan from company A with a loan from company B, meaning you will never get out of debt.

In the Netherlands, a Payday Loan (known as Microkrediet here) can be obtained by way of sending a text message with the desired amount. Way too easy, and way too tempting for people who shouldn’t be taking loans in the first place.

I’m surprised a dangerous scheme like this is even legal, but fortunately, Dutch authorities are going to pass laws in order to protect people from themselves.