Five Facts About Quick Loans That Will Make You Think Twice
Payday loans and other types of bad credit quick loans have been making the mainstream news recently. Much of the news has been generated by the Consumer Financial Protection Bureau, the agency born in the aftermath of the 2008 economic crisis. Since 2010, the CFPB has become increasingly aggressive in targeting lenders who offer quick loans through investigations, fines and proposed regulations.
In fact, the CFPB has been so aggressive that it appears as if the agency’s goal is to destroy the small loan industry rather than regulate it, according to an article appearing on Forbes.com. The CFPB has been vocal in its condemnation of storefront payday lenders as well as lenders who make quick online loans, including personal installment loans for people with bad credit and vehicle title loans. Although it is true that some borrowers misuse these types of loans — and it is also true that there are a few unscrupulous lenders out there — critics are overlooking several pertinent facts indicating that abolishing quick loans could do more harm than good.
Consider These Five Facts About Quick Loans and Think Twice Before Condemning the Industry
1. Nationwide, lenders offering bad credit loans extend short-term credit to approximately 19 million Americans each year, according to the Community Financial Services Association of America. These loans total more than $38 billion. Since traditional lenders have abandoned short-term, small-denomination loans due to the high costs of underwriting and servicing the loans, the question that needs to be answered is where these borrowers will turn for their credit needs if the industry is dismantled.
To date, no critic of the industry has offered a viable alternative. Banks and credit unions have stated that these types of loans would be unprofitable and virtually impossible to offer under the guidelines proposed by the CFPB. When it was proposed that post offices become the new source of these loans, the USPS basically stated that it had enough problems of its own and was not equipped to take on the challenges involved in making quick loans.
2. The American economy is still struggling to return to the levels achieved prior to the 2008 meltdown. Small businesses are being touted as crucial to the economic recovery, and most economists state that the country needs to retain every current job and add many more. According to the CFSAA study cited above, lenders offering quick loans employ in excess of 50,000 Americans earning $2 billion annually. Furthermore, these lenders generate over $2.6 billion in local, state and federal taxes.
3. Most of the criticism of the fast loan industry is being generated by people who have never taken out payday loans or fast online loans. There is a major disconnect between these people and the borrowers who actually use the products. For example, the results of a survey posted on PRNewswire.com revealed that over 90 percent of the borrowers felt that fast loans could be a sensible solution to handle an emergency expense, but only 58 percent of the people who had never used these loans agreed. Approximately 75 percent of the borrowers said they would recommend fast loans to their relatives and friends, while 96 percent reported that the loans had been personally beneficial.
4. One charge that is frequently leveled at lenders offering bad credit quick loans is that they do not ensure that borrowers understand the fees or how long it will take to retire the loan. The survey cited above tends to disprove this criticism. Approximately 96 percent of the borrowers stated that they had a complete understanding of the finance charges involved as well as the length of time it would take them to repay the loan.
5. Critics tend to suggest alternatives that are simply not options for many borrowers, including borrowing from a retirement account or using a credit card to handle the emergency. The survey posted on PRNewswire.com revealed that 74 percent of the borrowers stated that no other option was available to them at the time they secured their latest bad credit quick loans.
If you recall, 19 million American households use these types of loans every year, so if 74 percent have no other options, this means that more than 14 million people would be left with no legal recourse if these loans became unavailable. The consequences could be dire; for example, they might be forced to choose between paying rent and buying groceries or have to decide whether to keep the water or the electricity connected. If left with no alternative, they might write bad checks and find themselves in legal trouble. When facing great need, they might resort to borrowing from an illegal loan shark and find themselves in physical danger.
Abolishing Quick Online Loans Would Deprive Adult Americans of an Important Right
Despite what many politicians and consumer advocates believe, people tend to choose the best option available to them. When they visit a payday loan store or request quick online loans, it is because they have decided that such a step is in their best interests. Every borrower is an adult and capable of making his or her own financial decisions. No doubt, some borrowers will make the wrong decision and misuse their access to bad credit fast loans. However, there are also borrowers who misuse their credit cards; no one is advocating that credit cards be abolished to protect those who are drowning in credit card debt. In 2015, banks earned $17 billion from insufficient funds and overdraft fees, according to The Motley Fool, but no one is suggesting that checking accounts be banned.
In short, there will always be consumers who are vulnerable. Often, the problem lies with the individual rather than the credit product. Borrowers fail to consider how they will make payments before incurring debt. Sometimes, they overlook early signs that they are headed for a financial crisis; they do not save money when they can or they make unnecessary purchases and do not adhere to a sound budget. However, it is wrong to condemn an entire industry — one that provides a much-needed lifeline to millions of responsible borrowers — simply because there are some people who find themselves in financial trouble through either circumstances or their own irresponsible actions. Every American deserves the right to have access to credit, but each individual should ensure that he or she wields that right in a responsible manner.
Learning More About Credit Can Help You Make the Right Decisions
The more that you know about credit, the better your decisions will be. If you would like to learn more about quick online loans, the credit industry or other topics related to personal finance, visit the Personal Money Store.