Overindulgence can be a cause of pain as it can lead a person to debt traps with interests as high as 400%. Chronic borrowers are more susceptible to such payday loans which have a high cost of borrowing and with a smaller duration of time to pay them back it creates intense pressure for loan rollovers which can increase the debt burden.
Some feel that payday loans should be banned but this is not possible as every person does not have access to mainstream credit products. Banning payday loans may not be a solution but finding an alternative will definitely serve the purpose. Here social enterprises come into picture as they can implement a socially minded business model which would work towards serving the people in the long run as compared to their economic exploitation in the short run due to payday loans. Also innovative financial products need to be developed which are economically viable and sustainable in the long run.
Innovation will be required in terms of risk-modeling, technology and private-public-nonprofit partnerships for creation of a loan portfolio with risk profile for competition with mainstream personal loan products.
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