Receiving a Bad Rap: Payday Lenders Get All the Criticism
While Bank Loans Get Off Scot-Free
Payday lenders loan money to individuals at interest rates
determined by the amount and length of the loan. If a payment
due date needs to be extended, then the borrower is charged
additional fees. Traditional banking institutions and credit
unions do the very same thing-not to mention, they selectively
deny service to large segments of the population. So why are
payday lenders the only ones getting so much bad press?
Payday Loans May Not Be That Expensive, After All
Across the United States, payday lenders average a $20 charge
for every $100 loaned. While this may sound high at first,
consider the alternatives offered by a bank. Nationally, the
average insufficient check fee (when the bank clears a check
even when there isn't enough money in the account, making the
account balance negative)
Fees are tacked on to payday loans if they can't be paid back in
time; typically, loans renew every two weeks. In contrast, if a
bank account is negative for 30 days, most banks will close the
account and send the account holder to a collections agency for
the negative balance. Most people would welcome higher fees if
the alternative was losing their checking account and having a
collections charge placed on their credit report--a mark that
could end up costing thousands later on in higher interest rates
due to a lower credit score, compared with perhaps $100 in extra
loan fees.
Many payday lenders offer additional services, like check
cashing and money orders, similar to banks. Even on these
counts, payday lenders can often be easier to deal with and more
affordable.
Payday Lenders Serve a Larger Audience
If the explosion of payday lending services on the scene means
anything, it's that they're filling a need that has long gone
unrecognized (or been outright ignored) by banks. While lending
money is a primary source of profits in the banking world, they
usually are not interested in small or short-term loans; they
prefer to focus on mortgages, auto loans, student loans, and the
like. Additionally, banks are rarely willing to do business with
people who don't have good credit.
Payday lenders, on the other hand, recognize that everyone hits
upon hard times, and most only require some proof of
employment--no credit checks--in order to provide an immediate
loan. Yes, it's true that payday lenders largely serve a poorer
segment of the population, but that's only because the banks
have been turning those same people away.
The biggest indication that payday lenders may not be that bad
are the significant number of people who continue to flock to
their doors. Consumers now have more choices, and they have made
it clear that the $200-billion-a-year payday lending industry is
becoming an attractive alternative to many banking institutions
for some needs.
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