The Truth About Payday Loans Criticism
As the market demand for payday loans increases, and the number of businesses that provide them grows, the critics speak louder and louder. How much of the criticism is truth, and how much is a fear of competition, we’ll try to establish in the following criticism review.
About the interest rates:
Criticism of this way of financing is usually focused on interest rates. Well, the payday loans are short term, unsecured loans, being approved by a simplified procedure, mostly online, with no credit check required. The rule without exception is that such flexible procedure loans have higher interest rates than the long-term loans of large sums, for which the collateral, strict criteria of approval and complicated procedure is required. The bottom line here is, there is no such thing as a low interest rate for an easily accessible loan.
Payday businesses are not banks
The power of banking referrals comes out of the power of the banking sector, their financial strength, size and prevalence, more than it does from the clients’ real satisfaction. A powerful banking lobby affects the common opinion. Speaking of security and trust, remember the recent global financial crisis, whose beginnings were at the wrong banking business moves. The crisis first gripped a real estate segment, then spread to the banking system, insurance funds and the stock market. So much for the security guaranteed. Nothing is 100% sure.
One off repayment
The banks advocates emphasize the benefits of breaking of the payment, that they usually approve. But is it really a benefit to the borrower? One of the basic financial rules claims that small loans should be repaid in a short term. Paying off a large amount of money loan at once can disturb borrower’s liquidity but there is no such danger in a case small amount of the loan. By allowing deferred payment a lender keeps a borrower reliant on him for a long time, during which the interest, of course, is being charged. So, payment in installments is at least of questionable good for the borrower, and unquestionably good for the lender.
Discussions about the profitability
Well, of course having some money of your own is better than borrowing one. If you borrow money you will pay its price, and it is called an interest. But hardly anyone borrows money (or anything else) unless he doesn’t have it and needs it. Badly. So preaching about having an emergency fund, or getting one more job really can’t help when one needs money now. And as we all know, there are some things in life that surprise us and that cannot be delayed. Medical treatments for example.
So, the payday loans are a very good choice for people who are in urgent need for money and are facing current short term liquidity issues; the ones who need money quickly, will have the repayment money in the near future, and aren’t keen on big banks long and complicated procedures.