Payday Loans Are Not Entirely Bad

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by: PerryMonkhouse232
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Date: Sat, 29 Jan 2011 Time: 12:52 AM
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The incredible growth of shops that offer cash advance loans has astonished legislators and consumer advocacy groups, who worry, with justification, about the fact that people are lining up to borrow cash at interest rates of up to 500% per year. While stores that provide pay day loans amounted to just a few thousand stores in 1999, they now number more than twenty thousand of them. In a few cities, there are several shops on a single block, and despite the large number of companies that offer them, there isn't any competition in providing payday loans. Every store in a given town is charging the same rates as every other shop.

The interest rates aren't inexpensive. In return for borrowing an amount that varies from $100 to $500 for two weeks, a consumer has to repay the borrowed funds along with a fee that ranges from $10-30 per $100 borrowed. If he or she can't repay the money after fourteen days, the payday loan can usually be renewed for an additional two weeks, if the customer pays the charge again. The brief duration of the loans often makes it hard for consumers to repay, and many of them wind up repaying the fees repeatedly. Or they sign up for a different loan from another shop in order to pay back the original loan. And yet, in spite of the high costs, the businesses are successful and these loan providers offer billions of dollars in cash advances each year.

If the loans are so expensive, exactly why are the businesses so profitable? Why do so many people apply for payday loans?

The answer can be summed up in one word - convenience. Applying for bank financing could save debtors a lot of money, but bank loans and other, more formal, kinds of lending require a few resources that a lot of would-be borrowers just do not possess. The appeal of cash advances can be attributed to the common requirements of the stores that offer them, which frequently demand no more than these:

The consumer be a person of legal age
Have a job that they have kept for a minimum of 90 days
Have a checking account.
Be an U . S . citizen.
Have no other unpaid payday loans from that shop (in several states, from any store.)

That's it. You can get a payday advance with no credit check. Loan companies are not looking to see your credit score. They don't care about other payday loans you have. They do not care if you have a recent bankruptcy. They don't care if you have paid your Visa bill late three times in the last few months. If you meet the conditions above, they will almost certainly lend cash to you, which is one thing that no traditional bank will do with as little to go on as the minimum requirements that most advance loan stores require. It will be no great surprise that these stores are successful; they are going to accept the business of just about anyone.

That business includes a price, of course. That price is an average interest rate of nearly 400% annually. The success of these stores indicates that convenience and ease of use is an very important consideration in borrowing cash.

About the Author

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Perry Monkhouse is an online marketer with years of expertise. He has written articles on many different subjects.