Payday Loans Provide A Necessary Service!

I think Payday Loans are both necessary and provide a valuable
service regardless of the perceived problems of high charges,
first lets clarify what Payday Loans provide, short-term cash
advances until the next payday
The typical charges for this type of loan are of the order of
$15-$20 per hundred dollars borrowed so if you took a $250 loan
the charge could be as much as $50 for a 30 day loan, this is
equal to 240% APR, with such high rates one has to ask why is
this industry growing so rapidly
The answer is that it is providing a service that is required,
at a price that the consumers can afford; the actual APR is of
no great interest to the customer their only concern is can I
afford to repay the loan on my next payday
Think of it from the client’s point of view, why do they use
Payday Loans, I believe the answer falls into two parts
One Because it is fast and convenient
Two Because they probably cannot get credit in any other way
For a borrower with a poor credit history Payday Loans offer a
cash lifeline when it is most needed, to pay those unexpected
bill or to prevent repossession of an item that has been bought
on credit for example
Problems only arise when clients are unable to repay loans but
surely this applies to all forms of credit not just Payday Loans
All the above not withstanding one still has to ask, are the
high charges applicable to Payday Loans justified?
I think they are, first because payday lending is usually
dealing with high-risk clients with a poor or no credit history
Second the costs of issuing a Payday Loan are much the same as
issuing a much larger loan over a longer period, but these costs
have to be recovered in a much shorter timescale with a Payday
Loan hence the need for higher charges
To summarise, Payday Loans provide a service that is in high
demand by clients who can generally be considered high risk from
credit point of view and the charges reflect the costs involved
If there were no need for the service, in a free marketplace it
would cease to exist but until alternative sources of finance
are available to them people will continue to use Payday Loans
regardless of the charges and other apparent disadvantages
Roger Overanout

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