subject: Payday Loans Can Be A Risk For Lenders Too [print this page] How come personal lending options from pay day loan suppliers have better rates as compared to individuals from finance companies and banks? The higher costs for these types of financial loans are a consequence of the high risks that are associated with lending to individuals who have a minimal credit rating with no collateral for backing the loan.
Banks will usually only provide financial loans to people who apply with great credit, come under a specific range for wage earnings, and have a really good reason for needing the loan. They also want applicants with a low debt to earnings ratio. Many applicants get declined for the inability to meet the above requirements.
The approval process with an online payday loan is easy and quick. There is no appraisal of creditworthiness meaning the borrower may have a horrible credit score but nonetheless will still be approved. In a sense it's like getting a "sub-prime" loan when you buy a house. The risk associated with lending to such individual produces a greater risk for short-term cash advance lenders which is why the terms are different than a traditional bank.
To give an example: for every 10 candidates that are approved with an online payday loan, two or three of those loans will not be paid back. Because lenders require a signature only, lending becomes a high-risk situation. High-risk may seem like high gain, but from a business point of view, losing money or simply breaking even is not profitable. It takes no less than 4 repeat loans taken out from the same person to return the money invested by the lender. Some say that this is predatory lending and pressures borrowers into long-term debt by charging high annual interest rates.Payday loans aren't long-term loans, though, which is why there are greater rates placed on them. Consumers may benefit from zero interest loans in some cases when the loan is paid off by the date assigned by the lender.
There must be a shared responsibility in the payday loan industry. Not only should loan providers integrate good lending practices, the customer must be aware of the terms before they sign for their loan. Finding a responsible loan company with low rates can be done online. Browsing the internet to find a trusted company who will answer all your questions is the first step to getting a safe and reliable loan with a trusted lender. Reading the lender's "FAQ" page can help the borrower better understand what fees they will incur and the application process. Taking responsibility for your finances and budget is the on the borrowers shoulders which is why applying for a payday loan should be carefully considered.
