Payday Loans Under Scrutiny
Payday loans provide borrowers with access to immediate cash, and this service is widely used by individuals who are suffering from temporary financial hardships. Quick access to cash can be absolutely imperative during emergency situations. Individuals who are experiencing economic difficulty don’t often have access to other remedies, and traditional financial institutions are rarely willing or able to extend credit to people who do not have major collateral to offer. In addition, the process of obtaining a payday loan is easy compared to the kind of hurdles imposed by banks and other traditional lenders.
The Relationship Between Risks and Interest Rates
Nevertheless, there is criticism aimed at the payday loan industry, and many concerns focus on interest rates, which can be as high as 400 percent in some areas. According to an article in the New York Fed, these interest rates are well within the normal range for similar industries after accounting for the risk of default. Loan defaults contribute the most to the high interest rates, and this is unavoidable in this sector. Unlike certain types of bank loans, payday loans are not affected by compounding interest, and the borrower’s credit score cannot be affected through the use of a payday loan. These are important points to consider when examining the payday lending industry. Lending money is inherently risky, and the interest rate is the vehicle for the business to remain operational. The New York Fed article about the industry also noted that these businesses tend to disappear from areas where the interest rate restrictions are too steep.
Payday Lending and Cash Advances
Payday loans are very popular, and they are routinely used by people who are currently employed. This is why they are also called cash advance loans. Individuals who have a work history can apply to get an advance on a future paycheck in order to get money to cover immediate needs. This can be a safety net for people who don’t have moneyed friends or family to turn to in the event of a sudden emergency. When there is no other recourse, a payday lender can provide access to a cash advance, and this offers people a way out of a situation of financial distress. The terms of the contract are clearly articulated in the loan agreement, and the payday lender must answer any questions posed by the consumer in a timely manner.
Many unforeseeable situations can occur during the course of a person’s lifetime, and too many people live without an adequate safety net. For example, there is no way to plan in advance for a car break-down, and these repairs are often prohibitively expensive. Experiencing a sudden illness is another common problem, and family members could need help dealing with unexpected health conditions at any time. The lack of a safety net often adds stress to these situations. Most types of loans do not address these kinds of problems. Payday loans provide immediate relief in the form of a cash advance so individuals can meet their essential obligations while continuing to work. In exchange for convenient access to fast cash, payday lenders may charge service fees, and they are also allowed to earn interest on the balance.
Finding a Lender: Payday Loans
Payday loans provide low-income borrowers with access to a quick, reliable source of emergency cash. Working people rarely have access to collateral, so their next paycheck is often their only source of financial leverage. However, few traditional lenders are responsive to people who are in this situation. In addition, most borrowers spend a lot of time shopping around to find a lender who is able and willing to meet their needs. This is very time-consuming, and many borrowers naturally wonder if there is an online service that can help them to find the right type of loan. After all, access to a reliable source of emergency cash is just as important as the need to work with a lender who has a high approval rate. Additional information is always available at Personal Money Store.