Payday Loans: Good or Bad?

Payday loans are short term borrowing arrangements, usually in the amount of $500.00 or less, and are required to be repaid in full, in one payment. These loans have a very mixed reputation and are often referred to as “predatory” lending. Several states, including New York, have prohibited the practice of these short term loans. Some other states have set terms and conditions, including interest rates, that are unacceptable to the industry and therefore no short term loan activity is conducted in those states.

How do Expert Payday Loans work? 

Essentially a borrower wishing to receive a loan at Expert Payday Loans will agree to repay the loan, plus any fees and interest in fourteen to thirty days. Repayment dates are often timed to coincide with a “payday” from the borrower’s employer, social security payment or other source of income. Lenders usually require a borrower to give the lender a post-dated check for the repayment amount, or an agreement authorizing the lender to make an automatic withdrawal from the borrower’s bank account. While interest rates are often set in state law, they are quite high, basically thirty or forty percent. If the loan is “rolled over”, defined as only fees and interest are paid on the payment due date, the actual interest can skyrocket into the hundreds of percentage points. In contrast, the interest rate on a consumer loan from a bank or credit union can be as low as six percent, and rates for credit card cash advances range from 12 to 30 percent. 

Despite the historically negative perception of these loans, they do serve a valid purpose for borrowers. Payday lenders do not bother with credit scores or other measures of a borrower’s ability to repay the loan, due to the automatic repayment methods they employ. When people simply do not have any options, payday lenders are a last resort to obtain funds in an emergency. While it may be difficult for most people to imagine the circumstances that would force someone to use a payday lender, when people with no other resources are faced with the inevitability of being evicted for not paying rent or losing a job for not having reliable transportation, short term loans can be a positive solution. Within the last several years, most states have enacted protections for short term borrowers. The short term loan industry is subject to the federal Fair Debt Collections Practices Act, which prohibits harassment and abusive tactics in attempting to collect on the loan. Such prohibitions include not calling in the middle of the night; contacting the borrower’s employer or other third parties, such as relatives; and ceasing attempts to contact the borrower once the borrower has clearly made their intention not to repay the loan known. 

Payday loans can be thought as an imperfect solution in situations where people find themselves in very difficult circumstances. Borrowers now receive some consumer protections, and as long as there are times when a person’s financial needs exceed their immediate ability to cover those needs, there will always be a place for these loans.