Quick Cash Loans Are Not All Bad

Posted January 28, 2011 at 5:57 pm

The incredible increase in the number of stores that offer cash advance loans has astonished legislators and consumer advocacy organizations, who are concerned, with justification, about the fact that people remain eager to borrow money at interest rates of up to 500% annually. While stores that offer cash advances numbered in the few thousands as recently as 1999, they now number over 20,000. In some cities, there are several stores on a single block, and in spite of the many businesses that provide them, there isn't any competition in supplying these loans. Each and every shop in a given city is charging the same rates as every other store.

The interest rates are not inexpensive. In return for borrowing an amount that varies from $100 to $500 for fourteen days, a consumer has to pay back the borrowed funds along with a fee that ranges from $10-30 for every $100 borrowed. If they can't repay the money after fourteen days, the cash advance can generally be renewed for another two weeks, if the consumer pays the fee again. The short term of the loans often makes it tough for consumers to repay, and many of them wind up paying the fees over and over. Or they sign up for another payday loan from a different store in order to pay back the first one. And yet, in spite of the high costs, the businesses are successful and these lenders provide billions of dollars in payday loans each year.

If the cash advance are so expensive, why are the businesses so successful? Why do so many people apply for cash loans?

The answer can be explained in one word - convenience. Taking out bank financing might save borrowers a lot of money, but bank loans along with other, more conventional, kinds of lending require a few resources that a lot of would-be debtors just do not have. The lure of payday loans can be blamed on the common requirements of the stores that provide them, which regularly demand no more than these:

The consumer be a person of legal age
Have a job that they have kept for a minimum of three months
Have a bank account.
Be an United states citizen.
Have no other unpaid payday loans from that shop (in a few states, from any other store.)

That's it. You can aquire a loan without any credit assessment. Loan companies aren't seeking to see your credit score. They do not worry about other payday loans you have. They don't care if you have a current bankruptcy. They do not care if you have paid your cable bill late three times in the past six months. If you satisfy the requirements above, they will probably lend cash to you, which is one thing that no bank is going to do with as little information as the minimal requirements that most cash advance stores require. It will be no great surprise that these stores are successful; they are going to take the business of just about anyone.

That business comes with a price, of course. That cost is a typical interest rate of 391% per year. The prosperity of these shops suggests that convenience and simplicity of use is an very important thing to consider in borrowing cash.