Do you know anything about the history of payday loans? What could have motivated someone to offer such a thing? To find that out, we’d only have to look at fairly recent history – payday loans haven’t been around very long.
The industry is actually booming though and when our country is in an economic crisis, more people get more payday loans than ever. People need a way to get cash quickly and easily in times of personal crisis. From medical expenses to auto repairs, payday loans are a great way to avoid the hoops the banks put you through.
A payday loan is a short-term, high interest loan, designed as a last resort for those finding themselves in financial dire straits. But one thing payday loans have been is controversial.
So payday loans and cash advances are a pretty volatile subject these days – and have been since their inception. Mention them to some people, and they may just blow up at you. Others may see no harm in them, while still others may sing praises of them.
Consumer advocates say payday lending companies make millions of dollars from the lowest-income people.
Banks always want some kind of collateral or real good credit. (Payday lending) is a nice commodity for the community. You may have to pay $45 for $300, but that’s not too bad. And the service is helpful as long as you’re conscientious about paying it back.
Some people need small, fast, no-hassle loans to pay for surprises like car repairs, or for rent, phone or utility bills, etc., and payday lenders say they meet that need. It’s unlikely that payday lenders are targeting low-income people, because the usage of the payday loan cuts across the economic spectrum.
The Federal Reserve in the U.S. ruled that payday lenders must disclose, in writing, the APR on loans. They believe that payday lenders were deceptive in the information they disclosed to their customers.
They feel that if borrowers had a clearer picture of what they were getting into, they wouldn’t renew, or rollover, their loans so many times.
Another argument is that visits to payday lending stores, which open their doors in low-income neighborhoods are threatening the livelihoods of hard-working families and stripping equity from entire communities.
Many believe that the government are over-regulating the payday lending industry. They say that if the government steps aside, a free market will continue to reach out and draw the unbanked into the financial mainstream. They consider themselves a valuable part of that market.
Payday lenders say the alternative they offer to people in need of immediate cash advances, is far better than entering the underground market, such as loan sharks. After all, if they can’t make their payments, at least they can declare bankruptcy, instead of having their legs broken – or worse.
And lenders always provide all the information needed for a consumer to be educated about what they are getting into.
So the critics believe that payday lenders are gouging consumers with high-interest loans, preying on people who have little income to begin with. Their interest rates and fees are exorbitantly high and force borrowers into repeated rollovers. Their business practices are suspect at best and they should be totally outlawed.
On the flipside though, payday lenders offer quick, simple loans to people who find themselves in unexpected financial emergencies. They’re providing a much-needed service for the unbanked population, who are outcast from the financial mainstream because of low income and/or poor credit history.
Payday loans help to protect people’s credit history when funds are short. Lenders are providing a necessary service to those in need, and operate within the limits of the law.
So there are some of the arguments and the subsequent justifications of both sides. Many voices are speaking out throughout America.
Are payday loans a good thing? Or are they just taking advantage of people with no alternatives? You need to decide that for yourself.
But whatever your decision, you’ll have a good idea of the history of payday loans and how it relates to the position of the industry today. And if you’re ever in a position where you need a payday loan, you’ll have the knowledge with which to base your decision. Good luck!
Jack R. Landry has a PHD in financial services and has written hundreds of articles relating to consumer services and quick payday loans. He has been a consumer advocate for nearly 25 years.
Jack R. Landry