Repair Your Credit | Payday Loan Truth vs. Fiction (Pt. 1)

Facts and Fallacies of Payday Loans

Last time, we took a look at some of the advantages online payday loans have when you’re on the road to “Repair Your Credit.” Now let’s examine some of the truth and fiction that’s out there about the industry, so that you have more information to use when making decisions about how you’ll manage your short-term finances to rebuild and maximize your credit rating.

Currently, there are more than 11 states that have passed laws which have banned payday loan businesses from operating. The reason for this is largely based upon the fact that banks and credit unions take a rather monopolistic view of free competition.

In this case, payday lenders presented competition in the short-term consumer lending market, so banks managed to convince politicians through campaign contributions (and the promise of more to come) that they should regulate these cash advance lenders out of business. Numerous other states have capped or are considering putting caps on interest rates. Some of this is necessary to ensure that consumers are protected from those lenders who buck industry regulation and charge excessive rates, but for the most part, this damages the ability of honest lenders to operate. That in turn costs people their jobs.

Facing difficulties

Take Ohio as an example. They have capped short term loan APR rates at 28 percent. That dropped revenue at brick and mortar locations per $100 loaned from the standard $15 to $25 to a mere $1.08. Needless to say, this forced many to close their doors. Some have proven able to adapt their business plan, but regulators remain at their throats.

Wisconsin does not have laws against the payday loan industry, and the industry has remained in popular demand.

There is a media-created image of cash advance loan companies as monsters that target minorities and the poor. It’s all too easy for one business to label another in this way. Of course a business is looking to make a profit. It’s how the economy works. However, as we’ll see, there is no concrete evidence that these groups are targeted. The target for payday loans is people who need short-term cash. Mystery solved!

Payday Lenders Trap Borrowers in a “Cycle of Debt”

Many claim that payday loans trap consumers in a revolving cycle of debt. They blame the industry for faulty lending practices that ruin one consumer after another. Want to see how ridiculous that claim is? READ ON!