Payday Loans

On Line Pay Day Loans – A Necessary Feature Of The Consumer Credit Landscape?

On line pay day loans are undoubtedly very high in demand in the United States of America. These loans are advertised so aggressively on Internet and in local magazines and newspapers that the working class American consumers have almost assumed that payday lending is an essential feature of the consumer credit landscape. Even lenders promote these types of loans as the only way to get quick money when needed in a temporary financial emergency. They try to trap consumers in an array of ways. For example, the approval rate is often more than 99% because lenders do not check applicants’ credit score. Anyone with a decent employment and a checking bank account can qualify for these loans. The application process seldom requires any faxing of documents. It just requires you to fill out a simple online application form. The approval comes within one to two business days. Many lenders transfer the approved amount of loan directly to your bank account within hours.

The Negative Side

But, there is a negative side of these loans also, which is not at all hidden. On line pay day loans are extremely costly, and considering the very fact that these loans are mainly borrowed by low-income working class consumers, even a small amount of additional financial burden is too much for them. And, payday lending creates a mountain of debts on their financial head. In general, a $300 of loan requires you to repay over $425, which means $125 of additional financial burden. Though the concept of these loans are very simple – you borrow a small amount of money and promise to repay it as soon as you get your next salary, which is usually just a couple of weeks away. It looks simple in theory, but considering the high cost of loan, it is never easy to make full repayment in time. In most cases, borrowers are encouraged to make a partial payment and renew the remaining balance for another month. Alternatively, many borrowers simply borrow a higher amount of new pay day loan just to repay the previous ones. It keeps on happening every month and the resulting outstanding debt balances also keep on increasing rapidly. The debt cycle continues until borrowers get bankrupt. As per the latest reports by the Federal Trade Commission, over 30% of all bankruptcy includes those who become bankrupt because of their mounting payday debt problems.

Payday Lending Has Been Available In The Us For Just Over A Decade

Those lenders who claim that on line pay day loans are essential feature of consumer credit requirement forget to see that payday lending has been available in America for just over a decade. Ten years ago when people did not have any option for payday lending, they used to borrow money from pawn lenders at high rates in times of crisis. But, where pawn lenders used to charge interest at up to 180% per annum, the range of interest rates in case of payday lending starts from 390% per annum, which can go as high as over 1000% per annum. It clearly means that payday lending have not brought any better financing alternative for low income consumers. It just traps consumers in more debts so that payday lenders could make more profit. No wonder why payday lending has turned into a multi billion dollar industry within a short period of just ten years.

There Is No Concept Of Payday Lending In Majority Of Developed Countries

Last, but not the least, it is also important for you to understand that most of the developed countries do not allow a high-cost lending solution like payday loans. The advertisements for on line pay day loans that you come across over Internet are mainly targeted to the US consumers. It is very recently that this form of lending has found its place in other countries like Canada and Australia.

Overall, it is not at all correct to say that on line pay day loans, or for that mater, just any type of payday lending, is for the welfare of consumers. These loans are risky and dangerous. It is a welcome sign that even the Federal Trade Commission has warned consumers against these loans.

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