Payday loans have been getting a bad rap lately for what some argue are shockingly high interest rates and predatory lending practices, however when payday loans and their costs are stacked up against the fees of traditional banks, a different villain starts to show up.
The majority of payday lenders suggest short-term private loans that carry an average cost of inbetween $12 and $22 per $100 borrowed. (a elementary interest rate of 12% – 22%) The payback term is typically two to four weeks and the payments are automatically debited from the same consumer bank account that the funds were deposited into at the time of the loan. Opponents of payday loans argue that if the percentage rate on one of these loans is amortized over a total one year period, the annual percentage rate (APR) can reach or exceed 200%. Certainly an APR of 200% does seem shocking, but that also begs the question of, “Why would opponents of payday loans- or anyone for that matter, link an annual percentage rate to a loan that only covers a two to four week period?” We begin to see the self-serving purposes of the real villain when this question is answered.
Most groups that are vehemently opposed to brief term private loans and the payday lenders who suggest them are made up of large banks and other traditional lenders. They claim that they oppose payday loans in the interest of protecting American consumers. In reality, if we look at a typical screenplay involving these so called “protectors” a different story takes form.
Let’s say for example that a consumer who has the average bank checking account runs brief on cash and needs an extra $200 until the next payday in order to pay a duo of petite bills or buy groceries for their family.
The odds of getting a loan from the bank in less than 24 hours for even a petite amount are slender to none, especially if the consumer in need has anything less than flawless credit. Without the option of getting a quick payday loan, the consumer may be compelled to go ahead and write checks for those bills knowing that there won’t be enough money in the bank to cover them. Overdraft fees at most banks come in at around $35 per bad check and are automatically debited from the consumers account as soon as the next deposit is made. If that deposit is made after the end of the billing month, extra late fees may be added – further enlargening the amount owed to the bank!
Now let’s say the consumer had to write Trio puny overdraft checks that total $100 to pay those bills, the $35 fee is a per check fee so if the consumer writes three overdraft checks that total $100, the fees the bank charges to the consumer would be $105 or $35 for each bad check written. (a ordinary interest rate of 105%) If we amortize that amount into an annual percentage rate – as the banks do – when they argue against payday lenders, the bank interest rate on overdrafts exceeds 1,000% annually before late fees are added.
To make matters worse in this hypothetical bank account overdraft situation, the consumer will most likely be charged inbetween $20 – $45 by the three vendors to whom the bad checks were written, therefore the cost for NOT having access to a payday loan climbs even higher. Additionally, knowingly writing a bad check is against the law and punishable by jail time in most states. Despite what the big corporate banks and their lobbyists might wish for you to believe, when we take an objective look at the real world it starts to become very clear that payday lenders actually suggest a valuable service to middle and low-income consumers who otherwise have limited options with a standard bank account.
American consumers need payday lenders. If there wasn’t a need for payday loans and it wasn’t a viable solution to an existing problem, the business would not be flourishing via the country. “Traditional banking institutions just don’t suggest the plasticity and distribution of short-term cash loans the way payday lenders do… so it is an industry that has actually packed a void for many Americans – most of whom use the service wisely and effectively.” says William Janus, proprietor of three payday loan stores in Missouri.
The argument for and against payday loans promises to proceed and grow across the coming year and at the head of the pack opposing payday loans will most likely be those villains disguised as bank presidents who view the payday loan industry as encroaching upon their gluttonous profit margins that are conveniently hidden in overdraft and late fees. All the while they charge these shocking fees in the name of “protecting” the American consumer.
To protect yourself, make sure you are aware of any and all bank fees that you may be subjected to and if those fees are subject to being compounded or augmented by late fees and added interest. You can find payday lenders who are clear of any complaints with the Better Business Bureau or Federal Trade Commission by performing an Internet search for “best online payday loan reviews”.