“Predatory” Lending
- November 11th, 2008
- Posted in Payday Loans
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MSN Money posted an article today about supposed predatory lenders targeting the military. The claim was that military personnel have steady paychecks, are unlikely to quit their jobs, have little experience in managing finances, and are usually short on cash on account of their lower wages. Great canddiates for payday loans, right? Sounds like ripe picking for those evil payday loan people, right? Wrong.
What the ignorant authors fail to mention is how payday lenders make their money. They only make money if you pay them back! Payday loans are very, very risky. Interest rates are high because of the high risk. These people need to make sure they get paid. It makes no business sense to sell a product to someone who cannot pay for it. Why would lender give money to people who aren’t able to pay the money back? That’s just the first things wrong with this argument.
Last October a law was passed that capped loans offered to the military at 36% APR. No payday lender is going to loan anyone anything at 36% APR. If someone borrowed $300 for an entire month at 36% APR, they would payback a whole $309. Lenders cannot survive off of $9 a month per customer. No one in the military has been offered a payday loan since that law was passed, let alone targeted for one.
Payday loans would have actually been great products for people in the military. They know exactly when they are getting paid and exactly what they are getting paid. If they know their paycheck is one week away and it will be $800, then they can borrow up to $600 and easily pay it back with their paycheck. It’s just like paying money to receive your paycheck early. That’s what a cash advance is.
Truth is people who write articles like this one have a hidden agenda. Typically they work for a bank or credit union. They would love for payday lenders to go out of business. Then they would be the only ones who could offer short-term loans…the way they want to. Think payday loans are a ripoff? Just wait until only banks and credit unions can offer them. Then you will see what predatory lending really is.
I totally agree that more traditional lending institutions are behind the legislation being passed to shut the doors of the payday lenders. They want the business they dropped the ball on. It boils dwon to this. Payday Loans from company A to person B are popular with both A and B and the industry has flourished. Persons C, however, who don’t participate in this market have decided that, for their own good, A & B need to stop engaging in this behavior.
Payday loans are your best alternative to return check fees. If you are running low on cash and need some extra money to help out at the end of the month a payday loan is your best and most convenient option.