(Photo courtesy of flickr.com)

Lenders are starting to offer credit cards to consumers again. It’s no secret that lending to troubled borrowers was the beginning of the credit-industry downfall. Have credit card companies learned a lesson? Or are they headed down the same road again?

Brenda Jerez, who recently overcame credit problems by slowing paying off each bill in installments after medical expenses and emergencies left her $50,000 in debt, is already being solicited by credit card companies again. Said Jerez, “It’s like I’ve got some big tag: target this person so you can get them back into debt.”

Targeting troubled-credit consumers like Jerez  seems like a sure-fire way to repeat the cycle of default lending. But this type of consumer is the biggest customer base for many credit companies.

The next troubled market

Lenders are use sophisticated techniques to target consumers by creating detailed profiles of their financial health. It’s estimated that over 100 million Americans have been profiled thus. The information is sold to other credit companies, mortgage brokers, and banks that all compete for the next untouched market, and they seldom care if that untouched market is less than qualified. Jim Campen, executive director of Americans for Fairness in Lending, said, “They get people who they know are in trouble, they know are desperate, and they aggressively market a product to them which is not in their best interest…It’s the wrong product at the wrong time.”

Predictive modeling

Predictive modeling is a new tactic being used by credit card companies to predict the likelihood that consumers will need lenders, even before the consumers know it. Sometimes bulk letters are sent to homeowners asking if they want to refinance. Later, via email or telemarketing, lending companies find out whether the consumers threw the forms out or used them. This can indicate to companies offering credit cards or home loans which consumers may be in the market for a refinance loan in the near future.

Mortgage triggers

Mortgage triggers are another strategy used by mortgage loan companies is. When a consumer applies online or at a bank for a home loan or refinance, banks automatically get their name and information and can check their credit history. Then they offer the consumer loans and vie for their loan package.

Since 2005, Experian, Equifax, and TransUnion all have sold lists of consumers who apply for loans to banks and mortgage brokers. Alan E. Geller, CEO of Vision Marketing, said, “We call people who are astounded . . . they say, ‘I can’t believe you just called me. How did you know we were just getting ready to [apply for a loan]? We were just sitting back laughing.”

Benefit or detriment?

So the question remains whether or not this form of credit is truly a benefit to consumers, or if it’s just another way for credit card and mortgage lenders to trap people once again. Many experts maintain that it is beneficial to have credit available, but they also warn that without a solid plan to tackle debt, consumers may find themselves in even worse financial predicaments than the ones they are in now.

Business owners who need a little help are turning to microloans.

Payday loans and microloans are becoming more popular as the recession and the credit crunch have made it more difficult for borrowers to secure financing.

Even individuals and businesses with good credit are being turned away by traditional lenders. Individuals are turning to payday loans more often, and businesses are starting to seek out microloans at a higher rate.

What is a microloan?

Microloans are loans for businesses that are generally smaller, more short-term and have higher interest rates than traditional bank loans.

Microlenders are nonprofits that historically make small loans of up to about $25,000 to owners with spotty credit or slim experience. Their money comes from private donors and sometimes the government, according to Business Week.

Story of a businessman

Much like individuals who only need a few hundred dollars are turning to payday loans for help, businesses who need less than $25,000 are discovering microloans.

Business Week tells the story of Sarwat Etman. Etman is a business owner  who was looking to expand his retail operation. Despite his good credit score, a regular bank turned him away for a loan. Etman instead took out a microloan for $20,000. He agreed to pay the loan back in 48 months at 11 percent interest.

The American way

Americans are getting creative with how they handle their money.

Sara Ignas, a spokeswoman for the Association for Enterprise Opportunity, a microlending trade group, says her company has seen a big jump in demand for microloans. National statistics show that applicants for microloans with credit scores higher than 700 have jumped 43 percent.

I think this trend speaks to the resourcefulness of Americans. With traditional banks on such shaky ground, people are still finding ways to expand their businesses and handle personal financial emergencies. Microloans and payday loans are turning out to be a much needed resource for businesses and families during a changing economy.

It is a myth that Payday loans may eat you up. Some financial pundits and the prominent grapevine would have you believe that instead of being your savior, payday loans are your killer. This is far from the truth.

Why would payday loan lenders want to push you into debt?

If the lenders of such loans intend to push you deeper into debt, how are they going to stay in business? They want you to pay them back as much as you want to pay them back. It is never going to be the intention of good lenders to push you deep into a hole of debt where you would not be able to dig out of, because they need you to pay them back.

Moreover, they don’t lend you more than you can pay back on your next payday. If the borrower is not able to pay that back, it is not the lenders who got them into trouble but the borrower, who should have been more responsible with his or her money. This is not just for payday loans, but for credit card charges and other types of loans. No one should take out a loan if they have doubts about repaying it.

Be strict about repayment

For your own peace of mind, make sure to only take any loan if you are sure you will be able to repay it. Forget about the half measures, like paying a portion and leaving the rest for another payday. This is not the way to manage payday loans. You have to simply make sure that you will pay back every penny that is due when it is due. This is a loan meant to ward off a crisis and not so much a loan to repair debt (although there are ways you can repair debt with a payday loan, too). If you have serious debts, you may want to consider another type of loan, a debt consolidation loan.

Be aware of the situation

Don’t get the wrong idea that payday loans will milk you dry. Remember, you signed the agreement when applying for the loan, so, you should know what your terms of repayment are. No, the lenders cannot charge you more than what is laid down in the agreement. The lenders should disclose every detail of the loan to the borrower, before the borrower signs the agreement. So make sure you read the terms and conditions well before signing. This way you will not be in for a surprise, when you see the withdrawal from your next payday income. No matter what, you should make repayment your first priority with your next payday check.

Interest

Another myth doing the rounds about payday loans is that they charge exorbitant amounts as interest or costs. With good lending companies, this is not the case. Most payday loan lenders do not even charge interest. They typically only charge a fee or cost for the loan amount. Many states have imposed a limit for these rates, though they are not a uniform fee for those states.

The facts

We should face up to the hard fact the falling deeper into debt is our own doing and not the fault of the lending company or anyone else. Manage our loans well and we will keep out of trouble.

The credit crunch has made it harder to secure a personal loan or be approved for a credit card. Now, more middle-income families are turning to payday advance loans. These short-term loans can be a savior in a financial emergency. However, if you find yourself having one “financial emergency” after another, you might need more than a quick fix.

The payday advance loans cycle

Americans don’t have a very good track record of saving money, and many of us were already living paycheck-to-paycheck even before the recession. Now more people are finding that their paychecks aren’t lasting as long. If you are using payday advance loans to pay off regular bills, it’s time to re-evaluate your spending. Also, paying off one payday loan with another payday loan is a sure sign that you are stuck in a cycle that needs to be stopped.

Timing can be everything

Many borrowers take out payday advance loans to ensure that they pay their bills on time. This is a good idea because late payments can hurt your credit. However, if you have done this several times, it is time to set a new course of action. Call your cable company, utilities company, phone company, etc. and try to negotiate a different due date.

Buy the important stuff first

If you find that your money isn’t stretching far enough, make sure that after you get paid you buy the most important things first. I’m talking bare necessities: food, shelter and medical care. Make sure you keep track of your bills and if you can pay for things like housing and electricity early, do so. If it looks like you won’t be left with enough money to pay your cable bill without payday advance loans, it’s probably time to cancel your service.

Depending on your personal circumstances, funds these days can be tight. We are going to discuss whether payday loans are an appropriate choice in different circumstances. Primarily, most Americans have access to credit like credit cards, and some even have access to small loans from family or friends to get them through a tough spot. If this is you, then payday lending websites are likely not on your favorites list. That is typical for most people who do have other sources of short term credit and loans.

What about those who do not have the privilege of credit?

Many people, especially in this economy, are having a rough go of making ends meet. Are the families of these people any less deserving than those who have the privilege of accessing credit when their normal income fails to cover the budget? Some people actually think so, which is a real shame and somewhat of a shock to the conscience. Why would those with great incomes want to limit access to short term installment loans and payday loans?

Big business plays a major role in the media’s negative reporting on payday loans

If you are an average family you are likely very appreciative that gas prices have gone down in recent weeks. It is a relief that you don’t need to scramble to come up with gas money. For many, the high gas prices did not even touch their lives except when they heard others complaining about it. Most of the people who have control over what the media and the news report about the different lending options are influenced by large banks. Do banks have any influence in your personal opinions? Unimaginable, but those who seem to be living a decent life are usually in a job position where banks have a direct or indirect influence on their “official opinion.”

How banks and the media get into your home

Again, there are two types of people we are talking about here. The first is the average family that struggles from time to time with bills and the other family who didn’t even notice that gas prices were outrageous except in observation only. Those who make decisions about what goes in the news and what is on TV are paid by someone. Large banks control huge advertising budgets and therefore can influence what makes it into the news just by simple the principle of conflict of interest. The media has to balance the interests of their readers or viewers and their own pocket books.

Media favors the industries with the largest advertising budgets

As the average family, how is your perception of the payday loan industry shaped? Have you directly ever gotten a loan to avoid a budget emergency? Is your opinion based on direct experience or based on what you have heard. We all know where “they” got their expert opinions. Most people repeat pretty much everything they hear in person, on TV, radio, or what they read in the paper. The sad fact is that most opinion is influenced one way or another strongly against payday loans by the competitors of the payday loan industry.

Why are banks against the payday loan and short term installment loan industries?

Have you ever gotten 5 overdraft fees in one day? Have you ever been late on a car or house payment? How much did you pay? How long did you borrow the money for? I seriously doubt you paid less than a payday loan would cost. Banks rake in billion of dollars every year on these types of crazy fees on top of fees. Here is an interesting statistic, 60% of credit union profit comes from fees. The banking industry is one of the most powerful influences in the world on government policy and media opinion.

It is just competitive business tactics

The banks are not actually sicking the media on the payday loan industry because they are trying to stop a certain class of American’s from retaining their rights to short term borrowing options. They just don’t want you borrowing from anyone else besides them. Making sense yet? Big banks know that those who try to balance check books but also use debit cards are highly likely to mess up and overdraft their account every so often. They count on overdraft fees for existence. As a matter of fact, without these fees almost all banks would immediately go bankrupt and close down. The threat from payday loan companies is a matter of life and death for many big banks, especially those who wasted billions in bad investments and all the other garbage you hear in the news that they have been up to.

Now that you know the truth, are payday loans appropriate for you?

What choices you make about your private financial affairs is up to you. If you have read this far then you are likely an informed consumer anyway. It is important to weigh your needs and determine if you need extra cash to get by or if you can do without it. In the end, after time passes, doing without rather than getting a loan usually works out for the best. Payday loans are not really meant for convenience shopping or instant gratification purchases. If you are serious about protecting your family’s best interests financially, you will avoid unnecessary use of credit no matter what type it is. However, there are many situations where online payday loans can save you tremendous grief.

Payday loans can prevent family tragedies

There is nothing worse than having your family suffer unnecessarily. That is why the payday loan industry exists today. When you are going to have to go without food due to unexpected emergency bills or for some other reason you become short on funds, it is a huge privilege to have access to getting money directly deposited to your account in just a few hours. No questions asked! Your car could get impounded right after you paid all your bills, you could have a medical emergency, or any other situation you can imagine. If it were up to certain people you would only have access to 100 times more expensive forms of lending from them exclusively.

Everyone knows that using credit should be done responsibly

You know that money is to be used wisely. Common sense should let you know if payday loans or cash advances are right for your particular family budget. Payday loans are not drugs that make people sick if they don’t keep using them. Big banks would have you believe they are close though. The point is you know the truth and if you have read this far, you now see payday loans in the correct light. Keep the media from controlling your view point on matters of personal finance and credit. For those of use who have avoided emergency financial situations with these type of short term loans, we are happy to enjoy the privilege of accessing payday loans online.

Payday loans are a uniquely debated topic. It is very interesting to me that so many people seem to have blind hatred for cash advance lenders specifically. What is it that creates so much anger and animosity? Is it the fees that seem high if you look at them on a yearly interest rate basis? Very doubtful. I, being a continuous user of this type of personal loans, am somewhat puzzled. I do have a theory though.

Have you ever lent money to a friend? What about a shirt or some other type of clothing? Let me ask you this simple question, “are your friends always happy to give it back?” That is a profound question because it digs right down into the psychological reason why people believe the sponsored propaganda against payday loans in general.

Competition Between the Banks and Payday Loans

I know in many cases there are genuine reasons why people do not have the money to pay back the loan. These situations are not the reason why the media portrays payday loans and cash advances as a trap. Banking overdraft fees are hundreds and sometimes thousands of times more expensive. Payday advance loans are big bank’s fiercest competition. The point of this article is to discuss the real underlying reason why so many people easily buy into the propaganda against the payday loan industry. It is pretty simple if you just step back and look at it for awhile.

Loss Always Hurts

Once a human being acquires some type of advantage they do not like to give it up even if it is the right thing to do. A little extra money now and then, especially when the bills are tight, is tremendously helpful in a time when you need extra cash. But once a person is over it and the averted tragedy is just a memory they subconsciously see paying back the loan as a loss. Loss always hurts even if it is not really a loss at all but a justified repayment. Everyone hates losing an advantage they have acquired. It is a simple fact of life, for most people anyway.

If you have ever gambled and lost something big or had to pay a large bet you made in haste, then you know the sick feeling that can creep into your stomach when you have to give something up, even if it is the right thing to do. It is not the loans that are causing problems for people. It is their own mental issues that are causing them grief. Do you realize how much suffering in this world is self afflicted by psychological issues like this?

Nothing Lost When You Pay What You Owe

Fortunately for some, they do not feel bad when doing the right thing. I hope that those who do feel wrong when doing right, have a chance to someday learn to let it go as I have. There is nothing lost when you pay what you owe. This is a small and seemingly easy concept to think about but it is much harder to put into practice. Who really wants to give up a large chunk of their paycheck on payday? That is not the best feeling for people who do not have the capacity to continue being thankful for the emergency that was avoided even on payday when they pay back the cash loan they received.

As I mentioned before, I use these types of direct loans myself simply because the suffering my family would go through is far more severe than paying higher interest rates on a short term loan. We are not poor and most who obtain payday loans are not low income as the media portrays. In fact, you can not even get a loan if you are poor. The risk of default is too high for the lending companies.

There is nothing worse…

It would be nice if life never put our family in a situation where we had to pick between rent and groceries. I, for my part, are not going to get mad at the the nice people who are willing to risk their money to help my family avoid what I consider a tragedy. There is nothing worse for me to suffer than fighting with my wife about not having groceries or telling my kids not to eat too much because food is short.

Most of the time I am very thankful that there are payday loans available for families like ours. Life would be some much harder without easy access to short term loans. I just hope that people wake up and realize that before they ask the imperfect human government to take that access away, which would be a real tragedy for families like ours.

Just a theory by someone who does not hate to pay back what I owe and appreciates access to a cash advance payday loan.

David Johnston