Description of an Average Payday Cash Advance Customer
The payday loan industry is flourishing and is expanding more quickly than anyone might have predicted a few years back. Nowadays there are more cash advance loan shops across the country than there are McDonald’s, Burger King and Subway eateries combined. That is a whole lot of stores. And the industry is now under a lot of fire lately because the rates of interest charged for cash advance loans are certainly usurious and at worst, predatory. There is not much else which can be used to explain rates of interest that usually surpass 400% annually.
The industry defends its practices, noting that A) they are selling convenience and B) the interest rates they demand are not really interest, they are service fees and C) the loans are for periods of two weeks, not a year, so the yearly interest rate is irrelevant. These kinds of arguments can be discussed endlessly, but the loans are still popular in spite of laws and regulations that demand that the financial institution disclose all the terms on paper. The thing that the lenders claim that possibly doesn’t hold water is the assertion that their typical client isn’t poor, but rather a part of the middle-class who just borrows from them because it’s convenient.
Research suggests something else. Research conducted recently carried out in Arkansas paints a markedly distinct picture from the positive one suggested by the payday loan business:
According to the study, half of the respondents said that they sent applications for a bank loan before obtaining a cash advance loan but were turned down because of a history of bad credit.
More than three quarters of consumers did so for the reason that they were receiving threatening calls from creditors to whom they owe money.
Two thirds of participants said they got a payday loan simply because they just had no choice.
This strongly suggests that the primary beneficiaries of these payday loans really are the operating poor. Not only that, but they do not take out payday loans because they are convenient, but because they are literally the only opportunity to gain access to cash to repay bills or endure until the next payday. It’s a somewhat sad circumstance when the only available supply some people have to borrow cash is one that charges at least 400% annually. Regrettably, for many individuals, payday cash loans are their only option, as traditional banks often do not provide modest sums of money and insist upon rigid lending standards.
The market continues to determine whether these shops will continue to operate. After all, if no one wanted these products, no one would buy them. In the meantime, lawmakers in many states continue to try to find remedies that will allow these taxpaying businesses to stay while defending the consumers who obviously have no other place to turn. There isn’t any simple solution, as the lawmakers in South Dakota have discovered. They set up lax lending laws to attract banking institutions to the state, only to see payday loan shops appear on every corner. Obviously, lax banking legislation is a double edged sword.
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Perry Monkhouse is an Internet marketer with ten years of experience. He has written articles on many different topics of interest.
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