Advantages And Disadvantages Of Payday Loans

[Finance] » Blog Archive » The Dangers Of The Payday Loans Industry[Finance]PayDay Loan, Insurances, Debt Settlement, Auto LoanApr

1Filed under: PayDay Loan; Tagged as: check, credit, industry, LoanPayday loans are a popular and fast growing means of borrowing money. Their popularity is due to the ease with which the process works as well as its very short processing time. A customer writes a personal check for the desired cash, plus a fee for the payday loans lender. The borrower and payday loans lender both know the borrower has insufficient funds to cover the check.

The payday loans lender then advances the cash and keeps the fee, usually about $20 per $100 borrowed. The lender holds the check for two weeks or until the

According to an investment firm that does research for investors, payday loans firms enjoy a 48% return on investment, if we assume a 40% tax rate. Thus, more than $10 billion is made in a year, nationally, by payday loans.

Unfortunately this explosive growth is at the expense of low-income and elderly people. The convenience and simplicity of payday loans tend to conceal that a payday loan is at least 10 times more expensive than a traditional small loan. Even a cash advance made with a credit card costs only a fraction of the price of a payday loan.

For a household in financial strain, mounting payday loans fees can cause a shortage of money for basic necessities. But the families keep paying, and so the industry keeps growing. They are worse than pawnshop loans, where the borrower can always walk away without redeeming the pawned item. Since payday loans are secured by the borrower's own check, the borrower must pay both the principal and the fees, or face possible prosecution on bad check

The bill would further worsen the situation. It would provide a loophole for payday lenders, changing the legal definition of their business from lending to deferred presentment of personal checks. And as a result, payday loans lenders would be exempt from rules governing traditional lenders.

Payday loans lenders argue that they provide customers with onetime financial aid for emergency expenses. They argue that since, no one else would takeout mortgage loans at such rates it is okay for the payday loans to be expensive. But according to industry sources, a typical customer takes out 11 or 12 payday loans a year, and nearly 40% of borrowers extend their loans past the initial two-week term. One payday loan firm even reported that it relies on repeat customers for more than 89% of its