Don’t cap payday loans; they will help the economy to recover

Just one side of the coin

Everyone around the world seems to be busy these days slamming payday lenders for their rates; so much so that the think tanks around the U.S. are now thumping their foot down to cap the payday loan industry. Everybody gives the logic that the tactics of the payday lenders will not be tolerated because of their rates. These rates must be restricted to lower levels. If you believe such tall tales you read every morning in the newspaper, then wake up buddy, it’s just one side of the coin.

Check out the other side

Those who are throwing stones on the payday loan industry are talking about the interest rates, but have they ever talked about the high degree of risk involved for the lender? Forget about the lenders, have these people ever talked about the feelings of the people who get the loan virtually instantly despite their poor credit records? Never!!

They always talk about the rates charged by payday lenders, but they never talk about the fact that these are the lenders who dare to lend to such people who cannot even pledge any security and who the regular lenders don’t even think of lending to. Payday lenders actually risk their money to fulfill the borrowers’ need, which in many cases saves him or her from many problems, including going bankrupt.

Beyond the logic of rates and businesses

While all discussions are concentrated on the payday loan rates, everybody is forgetting the benefits that surface from the payday loan industry. Today, we are in the midst of financial turmoil. Our economy is witnessing negative growth quarter after quarter and consumer demand is dropping faster than ever. But have we ever analyzed the reason?

Across the board pay cuts and job losses have left everyone with less cash, which automatically has restricted their spending. And thus the demand is falling with every passing day. So what should be the solution to combat the situation?

The unseen biggest dimension

Going by what basic economy teaches, it’s time to add a thrust to the demand scenario to help the economy break the shackles. That means it’s actually the time when people need to have cash in their hands as it’s the only situation when they will start spending and thus demanding. And to help people have money, it is the time when lenders should be asked to gear up lending. Unfortunately, the regular lenders at the moment look busier in finding their appropriate secured borrowers rather than thinking about the recovery, which makes it sound all the more illogical to let payday lenders cap rates.

The result will come quicker than expected as most of the payday borrowers are in need of immediate money. That means they are set to create an instant impact on the demand. At such a crucial time, if lending rates of the payday loan industry are capped denying lenders a premium for the risk taken, then it’s very natural that they will start behaving like the regular lenders and try to pick up safe borrowers only. And if this happens, then rather than heading towards the good old growth days, we will move one step away from it.

It’s important that we understand that just like we can’t judge a three dimensional figure by seeing just one dimension, we can’t neglect the benefits of payday loans just by looking at their rates.