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Payday Loans Provide A Necessary Service!
By: Roger Overanout
I think Payday Loans are both necessary and provide a valuable service
regardless of the perceived problems of high charges, first lets clarify what
Payday Loans provide, short-term cash advances until the next payday.
The typical charges for this type of loan are of the order of $15-$20 per
hundred dollars borrowed so if you took a $250 loan the charge could be as much
as $50 for a 30 day loan, this is equal to 240% APR, with such high rates one
has to ask why is this industry growing so rapidly.
The answer is that it is providing a service that is required, at a price that
the consumers can afford; the actual APR is of no great interest to the customer
their only concern is can I afford to repay the loan on my next payday.
Think of it from the client's point of view, why do they use Payday Loans, I
believe the answer falls into two parts
One. Because it is fast and convenient.
Two Because they probably cannot get credit in any other way.
For a borrower with a poor credit history Payday Loans offer a cash lifeline
when it is most needed, to pay those unexpected bill or to prevent repossession
of an item that has been bought on credit for example.
Problems only arise when clients are unable to repay loans but surely this
applies to all forms of credit not just Payday Loans.
All the above not withstanding one still has to ask, are the high charges
applicable to Payday Loans justified?
I think they are, first because payday lending is usually dealing with high-risk
clients with a poor or no credit history. Second the costs of issuing a Payday
Loan are much the same as issuing a much larger loan over a longer period, but
these costs have to be recovered in a much shorter timescale with a Payday Loan
hence the need for higher charges.
To summarise, Payday Loans provide a service that is in high demand by clients
who can generally be considered high risk from credit point of view and the
charges reflect the costs involved. If there were no need for the service, in a
free marketplace it would cease to exist but until alternative sources of
finance are available to them people will continue to use Payday Loans
regardless of the charges and other apparent disadvantages.
Roger Overanout
About the Author:
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