Currently, payday lending companies are rapidly spreading nationwide. Ever since these fast loans come to light, they are accompanied by numerous controversial debates incorporating both sides of the payday industry (the benefits and risks) and the Federal attempts to regulate this online lending. Why? Let’s go deep into the definition of payday loans and weigh the arguments for and against adhering to these short-term financial tools.
Payday Loans in a Nutshell
A payday loan may be defined as a small loan, the maximum amount of which generally totals $2500 and is secured by the borrower’s checking account; so that the lenders are capable of withdrawing the debit from your bank account on your paycheck. Compared to bank-issued loans that require excellent credit history and pricey asset-based collateral, payday loans may be considered their handy alternatives. These easy-to-get financial instruments are available to almost every American with a steady income source and ready to provide personal data, embracing phone number, ID, and bank account number. The Internet explodes over the tremendous number of online payday lending platforms, each blowing its own horn. Each borrower's task is to find the best option that corresponds to his/her exact case. For this very reason, the borrowers should be aware of all the risks, possible implications, and benefits that may come along with these paycheck loans.
Why are the Americans Indebted Several Months of the Year?
Payday lending opponents steadily trumpet the risks of taking out paycheck loans, manifesting the situation's apprehensiveness. Hence, the government makes every effort to limit borrowers from getting avail of these credit types. The latter claim that payday loans may foster habitual borrowing and pile up debts. Simultaneously, the advocates of payday lending claim that the bad reputation of these loans is connected with ineffective management of the borrowed funds. These loans are intended for handling emergency expenses; however, a great bulk of Americans take these loans to coat day-to-day expenses to get through over the course of a month. In fact, the reasons behind the tons of payday loan requests are hidden in the constant need for income rather than tackling emergencies. The payoff is millions of indebted households, who spend approximately $500 payday loan interests per year, taking out several loans.
Who Are Payday Customers?
Multiple studies have shown that people of all ages and incomes can adhere to payday loans now and then. However, some factors play a crucial role in becoming a potential customer of payday loans:
Education: they are aware of the ins and outs of the lending industry. They understand the risks and possible implications of driving themselves into indebtedness even for several months. In comparison, the scammers (the Internet is full of them) or even lending companies may pray on uneducated people.
Family Status: Married couples, especially those with children, more often patronize payday loans than families who don’t have them, as the fewer the family members are, the less the credit demand is.
Age: Though there is not an age barrier, and according to most researches, people of all ages take out payday loans, however, there are some records that seniors can live without requesting payday loans, as they have accumulated savings.
Impaired Credit History: The explosive growth of payday loan requests stems out from credit-constrained households. The latter are often confronted with the challenge of covering some expenses just in the middle of the month.
We arrive at a conclusion that payday lending may be considered a bridging solution to temporary monetary troubles in light of impaired credit histories of low-to-middle-income families. The problem is in the reasonable utilization of the credit. For economic development and the achievement of welfare, households should learn how to manage family money properly. In this case, taking avail of paycheck loans can make sense. For this very reason, the federal and state authorities should foster financial education and public awareness of the intricacies of all credit types.