Payday Loans Are Not Entirely A Bad Thing

The incredible growth of stores that provide quick cash loans has amazed lawmakers and consumer advocacy organizations, who are concerned, with good reason, about the fact that people remain eager to borrow money at interest rates as high as 500% per year. While stores that provide payday cash advances amounted to just a few thousand stores in 1999, they now number over twenty thousand of them. In several metropolitan areas, there are several stores on just one block, and despite the large number of companies that provide them, there is no competition in offering these loans. Every store in a given town is charging exactly the same interest rates as every other shop.

The rates are not cheap. In exchange for borrowing an amount that varies from $100 to $500 for fourteen days, a consumer has to repay the loan along with a fee that ranges from $10-30 per $100 borrowed. If he or she can't repay the loan after two weeks, the cash advance can usually be renewed for an additional fourteen days, if the consumer pays the charge a second time. The short term of the loans frequently makes it difficult for consumers to repay, and a lot of of them wind up repaying the fees again and again. Or they sign up for a different payday loan from a different store in order to pay back the original loan. Nevertheless, despite the high prices, the companies are profitable and these loan companies provide billions of dollars in payday loans each and every year.
If the cash advance are so expensive, exactly why are the stores so profitable? Why do so many individuals apply for payday loans?

The answer can be explained in one word - convenience. Applying for a bank loan would save consumers a lot of cash, but bank loans and other, more conventional, types of lending require several resources that many would-be individuals just do not possess. The lure of payday loans can be attributed to the common requirements of the stores that provide them, which typically require no more than these:

The consumer be a person of legal age
Have a job that they have kept for no less than three months
Have a bank account.
Be an United states citizen.
Have no other unpaid payday loans from that shop (in a few states, from any store.)

That's it. You can obtain a payday loan with no credit check. Loan companies are not seeking to analyze your credit score. They don't care about other advances you might have. They do not care if you had a recent bankruptcy. They do not care if you have paid your telephone bill late three times in the past few months. If you satisfy the requirements above, they will probably lend cash to you, which is something that no traditional bank is going to do with as little to go on as the minimal conditions that the majority of payday loan stores call for. It should be no surprise that these shops are profitable; they are going to take the business of just about anyone.

That business includes a price, of course. That cost is a typical interest rate of 391% annually. The success of these stores suggests that convenience and ease of use is an very important consideration in borrowing cash.