The Truth About Payday Loans
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The Truth About Payday Loans
The payday loans industry is full of myths about how evil payday loans companies are and how they take advantage of people with insanely high interests rates and ruin peoples lives. The critics of the payday loan industry do not see the huge advantage it brings to those in need due to unexpected expenses and how suprisingly economical payday loans actually are. Here will seperate the myths from the truth.
Myth: Payday lenders take advantage of the underprivelaged and poor
This is a common assertion from critics who don't really understand the payday loans industry and its consumer base. The facts are that the majority of people who get payday loans are in the heart of the middle class and just need a little money to pay off some unexpected expenses due to their lack of savings or expendable income. They are not poor, homeless people with no money. This can be seen in statistics from the Credit Research Center at Georgetown:
* The majority of payday advance customers earn between $25,000 and $50,000 annually;
* Sixty-eight percent are under 45 years old; only 4 percent are over 65, compared to 20 percent of the population;
* Ninety-four percent have a high school diploma or better, with 56 percent having some college or a degree;
* Forty-two percent own their own homes;
* The majority are married and 64 percent have children in the household; and,
* One hundred percent have steady incomes and active checking accounts, both of which are required to receive a payday advance. *
*Source: The Credit Research Center, McDonough School of Business, Georgetown University, Gregory Elliehausen and Edward C. Lawrence. Payday Advance Credit in America: An Analysis of Customer Demand. April 2001.
Myth: Payday loans are very expensive with huge interest rates
Payday loans are two week loans. They are not annual. Critics of the industry spout out humongous interest rates that are really a misconception. For example a payday loan that is a $100 has a $15 dollar fee. That is simply a 15% fee not completely outrageous. How they are made to seem outrageous is by rolling that two week loan over 26 times. This is not realistic due to the fact that most states don't even allow rollovers or they are limited. Furthermore a payday loans 15 dollar fee is a lot better compared to consumers other options including 54 dollar fee for a bounced check, 37 dollar fee for a late credit card payment, and a 46 dollar fee for a late utility bill. Which would you rather have?
Myth: Payday loan companies make billions in profits due to huge fees.
Small denomination, short-term loans are very expensive to originate and maintain, which is why most banks no longer offer the product. According to the Federal Reserve Banks 1999 Commercial Bank National Average Report, the cost for a small bank to originate and maintain a loan for one month is $174. Industry critics fail to recognize that, in addition to the cost of administering the loan, payday lenders incur the normal overhead costs of running a business and paying employee salaries and benefits.