Payday loans - Surveys don’t tell the whole story

Under the influence of the White House, many states have eliminated their laws prohibiting high-interest lending and the number of companies that offer cash advance loans has seen extraordinary growth in the last five years. The quick cash industry is absolutely lucrative. It is easier to find a cash advance loan than it is to find a hamburger from Wendy's or Burger King, as there are now almost 22,000 lenders nationwide that offer short-term, high-interest loans.

Cash advance loan studies are quite misleading and ought to be viewed with suspicion, as the industry can't hide the truth that the loans are still expensive ways to borrow money. The cash advance industry is quick to provide statistics that shows that their loans are less expensive than bouncing checks or using credit cards.

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The borrower pays a fee that comes to about fifteen dollars per $100 borrowed over the fourteen day length of the loan, which averages about three hundred dollars. Cash advance loans or quick cash loans are definitely expensive; the 400% annual interest rate is much higher than the interest rates charged by charge card loans, which usually run less than thirty percent per year. The underlying thought of the "quick cash loan" is that it will help the borrower survive until their next paycheck. If the customer cannot pay back the loan in two weeks' time, he or she can normally renew the loan by paying the fee again. The profits from the forty billion dollars offered in cash advance loans or quick cash loans every year are astonishing. The typical interest rate on a short-term payday loan is roughly four hundred percent per year.
 

The companies that provide these loans point out that the rate of interest, as an annual rate, is less than that of an overdraft penalty applied by a bank if that were stated as an annual figure. Apologists for the high interest rates note that the prohibative interest is required to account for those borrowers who fail to pay. Banks charge overdraft fees to penalize you for bouncing a check, and the fee is intended to discourage you from doing it again again. The fees charged by banks or credit unions are not fees charged for convenience; they are penalties. When comparing payday loans to bad check fees, the quick cash loan might seem to offer an advantage, but that type of comparison is rather like comparing apples and oranges. Very few banks charge fees as high as $60; most charge half of that. It is a rare person that writes a bad check on purpose; most people do not write checks when they know they don't have the cash in the bank to cover them.

For people who can afford it, borrowing money against a charge card would be a wiser choice, as the rate of interest is much cheaper; usually in the twenty to thirty percent range. Payback terms are immensely more versatile for bank card loans as no bank or credit union will insist upon full payment, plus interest, in only two weeks' time.

The cash advance companies are certainly correct when they point out that they provide financing to people who have few other alternatives. Comparing expensive borrowing to fees for writing bad checks is hardly a honest example of how high-interest lending is cost effective. A lot of quick cash borrowers have no credit and borrowing from banks or credit unions is not an option for them.