The Dangerous Cycle of Loan Payments

Kimberly Watson, Editor in Chief
March 09, 2012 /

The fear of not paying a loan within the stipulated time is a reality unfortunately, for some people. On the date the loan becomes due, the borrower must discharge the outstanding amount, either by visiting the offices of the lending organization, or by deposit directly into their bank account.

If a borrower is unable to pay the due amount on or before the due date, the loan may be extended and if so, could involve additional fees.  This is also the way in which a cycle of loan repayments is created!

The advantages of a loan are various and depends on the borrowers circumstances at the time of the loan. If it is a payday type of loan, needed for an emergency, then the lender’s expectations are that you discharge it with your next pay check.

For most of American consumers, the economic conditions that have been experienced in recent years have created situations for the borrowing of short term loans and the potential for loan cycles. This could be especially prevalent for low to middle income families, with the more affluent having various options relating to investments and long term loan facilities.

However, in either of the foregoing circumstances, the results are the same. If repayments of the loans are not made when specified, the temptation is to extend the loan or enter into a new one. It is a situation that encourages additional fees from the lenders or bank charges and added costs of a new loan.

Generally, it is a case where the borrower discharges the amount of the loan and then discovers they do not have sufficient funds to meet their living expenses. In other words, they are becoming trapped in a cycle of loans! In certain instances, it is a cycle that could be ongoing, as for certain types of loan, there is no limit on the number of times a borrower can access the facility.

 

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