Have You Ever Wondered Why Payday Loan Fees Are So High?
There is quite a bit of bad publicity out for payday loan sites and online lenders
. The stories are endless about loan after loan going bad causing financial hardship for many consumers. News articles broadcast predatory lending practices with high fees and exuberant interest rates. I tend to ask myself why such practices would be successful with continuous new clients looking for these short loans if the practices are so poor. I dug in deeper to the industry and found some interesting answers to my many questions about the payday loan industry.Why do people apply for these loans? This was an easy one to find an answer to. So many people fall short each month or have too many unexpected costs arise that their personal income cannot afford. These loans are access to quick money to solve an impending problem. Another highlight to payday loans is the no credit check application. No matter what your credit history is, your score will not be a deciding factor with obtaining the loan.
Why are the fees so expensive? This took some digging since most articles only listed complaints of high fees rather than interpreting the business aspect of it all. Most banks refuse loan applicants for low credit scores, credit scores that show recent negative activity or scores that are good but the debt to income ratio is on the higher end. These people still have budget problems and need assistance. Online payday loans become more attractive since they will not count these problems as a negative to your application status. Because these companies lend money to those with questionable credit, the loans are considered high risk. With high risk loans, there are many which fall through and the company loses money.
It would make sense as an individual that if my financial situation does not lend itself to a payday loan, then make it would be irresponsible to take the loan anyway; just as a lender would be irresponsible to lend money to someone who does not have the income to support the payoff. State regulations took a stance and set guidelines for the lending companies. Because the loans are high risk, there needs to be incentive for the person to pay it back so the company can recover money lost. From a business point of view, it makes perfect sense. I now understand why these lenders carry higher rates than banks and it would make me think twice before I apply for a loan. I would also make sure that if I did, I would be sure to have the costs to repay the loan on time. On time payments make payday loans a cost effective approach to small financial troubles.
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