subject: The Pernicious Effect of Payday Loans [print this page] The Pernicious Effect of Payday Loans The Pernicious Effect of Payday Loans
In a sign of the times, one of the interesting trends which have occurred in many of the largest cities, particularly within impoverished pockets of the city, are payday loans offered by neighborhood financial institutions. You will also typically hear these types of loans called cash advance loans and post dated check loans.
So, what are payday loans? They are essentially a cash advance, provided by a lending institution, and given against a personal consumer check. In recent years, they have become so popular simply because many people are basically a paycheck from losing their home or apartment.
A good example is a man whose rent is due the end of the month which comes in two days. He owes five hundred dollars but he doesn't have the money. But he is due a paycheck in five days which will more than pay for the rent. So, in an effort to keep from getting evicted and thrown out into the streets, he visits a neighborhood payday loan establishment, writes them a personal check for five hundred dollars, plus their fees and interestt. In return, he immediately receives five hundred dollars -in cash.
There is not standard fees for the payday loan industry. Normally, the particular loan center will charge whatever they can get away with in that market. In the majority of cases the borrower is charged a percentage of the amount being loaned. And, usually, a minimum lending fee is imposed also.
States and cities do not like financial institutions charging outrageous interest rates on loans. That is why Usury rate laws sprang up across the country. But although the rates for payday loans are at dramatically higher rates than usury rates, the majority of states and municipalities have chosen not to regulate these entities
If you take the time to actually compute your real rate of interest, you wil find that, in essence, you are being charged tons more in interest than would be legal in just about a loan of any other type. Regrettably, precisely due to their financial problems, the people who live in neighborhoods such as this are limited in their options. They have little choice other than to let the lenders in the neighborhood exploit them.
Many believe these companies to be bad. But, it is obviously apparent that these companies are meeting some needs? Otherwise so many people would not be using them. But the interest rates that these companies charge are so huge, that most consumers would be much better off seeking a different solution for their money troubles.
A relatively simple solution that works well with local vendors or creditors is to negotiate with the creditor to whom you owe money and offer to pay them a percentage or two more if they are willing to wait another week or so for you to pay. If they agree, you will almost always come out financially ahead over what a payday lender would charge you. And if, for the most part, you have been a reliable debtor, they will be glad to accept your offer.
