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A payday loan does have high interest rates. This is not because the lender is trying to take advantage of emergencies, but because they are a short term lender. A short term cash advance via payday loans can average 15 to 30 percent interest over a maximum of three weeks. A long term credit card or bank loan averages 7 percent interest over several years or longer. The payday loans are meant to be short term loans, not long term loans that are constantly refinanced with monthly statements. This means that the payday loan company assumes greater risk at the same profit level as other financial institutions.
A payday loan provided by a reputable payday loan or cash advance company does not take advantage of people. It is meant to be used only for a short term emergency situation by employed persons who need a little bit of help between paydays for emergencies. This is a very common occurrence when most families live paycheck to paycheck and may not be financially prepared for emergency repairs, travel or medical expenses.
This myth is incorrect. 37 states have very succinct regulations concerning a short term payday cash loan. These states with regulatory provisions have legal consumer guides that monitor and control the maximum and minimum amounts received through a payday cash loan, as well as the length of time and interest rates.
The payday cash loan facility is required by law to disclose any application fees, interest rates and other fees. Hidden fees are not allowed by members of the CFSA, the payday loan organization's governing board. According to the CFSA, the Truth In Lending Act is a legal requirement and all fees and rates must be clearly outlined and disclosed to the customer. However, it is important to realize that a payday cash loan institution is not a bank or credit facility.
The CFSA has also been highly involved in assisting state boards with creating and maintaining payday cash loan regulations which can satisfy the immediate emergency needs of American families. If you find that a local or web-based payday cash loan institution is not adhering to your state regulations, please contact the CFSA and your local police department.
It's important to understand that a payday advance is not meant to be a long term loan. It is not meant to function as a credit card or bank loan. What a payday advance has done is assist millions of American families with emergency needs. This means that a payday advance is given only under the agreement that it will be paid off on the applicant's next payday (hence the term, payday advance).
The Community Financial Services Association is the regulatory organization for payday advances. They state that a payday advance can be rolled over, but only a maximum of four times. Thus, the payday advance applicant is not stuck in a long term, high interest rate loan. Furthermore, the CFSA reports that the upper majority of applicants use a payday advance yearly, rather than monthly. This is less than the number of people who bounce checks to overcome an immediate family emergency that may arise. A bounced check costs at least $25 from the bank, regardless of the amount of the check. Thus, a payday advance is a more economical option than bouncing a check.
In reality, quick payday loans fill a necessary component in the economic world. Considering that most middle class persons are in credit card debt already, it often becomes impossible for them to receive emergency quick cash for emergencies, medical expenses, or other needs that may arise between payday. Furthermore, since quick payday loans are only short term cash advances that are not based on your credit, this adds an additional service to the middle class person.
The problem is that people and organizations have a tendency to focus on the interest rates. At first glance, the interest rates may seem high. So, consider that a person needs an immediate loan of $100. Their options are to place the $100 on a credit card with a 7.9 percent interest rate or to take out a quick payday loan with a 15 percent interest rate. Now, most people do not pay their credit card balance in full when it is due. They only pay the minimum balance, which covers the interest rate. This can take a very long time to pay off the full amount. With a quick payday loan, the $15 fee does not accumulate past the payment remittance date unless you decide to re-submit for another payday loan, which is not recommended in quick payday loans. Also, there are no annual or hidden fees with quick payday loans. This is less predatory than credit cards who alter interest rates and apply hidden overcharge and hidden annual fees to the credit card. However, it is important to understand that quick payday loans are NOT credit cards. They should not be used as credit cards, but only used for immediate emergency needs.
Payday advances are marketed toward subprime clients without a distinction of employment or culture. In fact, payday loans are marketed toward those people earning between $25,000 and $50,000 per year. Most payday advance members are under 45 years old and all payday advance applicants must be currently employed with a steady income and have an active checking account to qualify. The majority of payday advance applicants own their own homes and are college graduates. In reality, payday advances are meant for the American middle class who are hard working adults with an immediate emergency need that cannot be satisfied through bank and union loans.
Payday loans do not attempt to take advantage of any particular demographic, including military personnel. The Community Financial Services Association of America (CFSA) is the organization that deals with payday loan concerns. They have “appointed a military advisory council to develop a code of military best practices by which our members must abide.” Furthermore, according to the CFSA, “Penn, Schoen & Berland Associates found that only 3.69 percent of military had taken out a payday advance in the last five years – and only 1.18 percent had an advance outstanding.”
The fact is that a payday loan is marketed and supported by middle class customers who have continuous employment, an active checking account and need emergency funds until their next payday. Payday advances are not meant for persons who cannot afford to remit payment on the payday advance.