Payday loan statistics can hide the truth

Cash advance loan statistics are quite misleading and should be viewed suspiciously, as the industry can't hide the truth that the lending options are still pricey ways to borrow money. The cash advance industry is eager to offer statistics that shows that their loans are less expensive than bouncing checks or using credit cards.

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The underlying thought of the "payday loan" is that it will assist the borrower until their next paycheck. If the consumer can't pay back the loan in two weeks' time, he or she can usually renew the loan by handing over the fee a second time. The profits from the $40 billion granted in payday loans or cash advance loans every year are staggering. The average interest rate on a two-week payday loan is almost 400% a year. Cash advance loans are certainly pricey; the four hundred percent annual interest rate dwarfs the rates of interest applied by charge card loans, which usually run no higher than thirty percent annually. The borrower pays a fee that averages about fifteen dollars per $100 borrowed over the two-week duration of the loan, which averages about three hundred dollars.

The cash advance industry is unquestionably profitable. Under the influence of the Bush administration, a number of states have eliminated their laws against high-interest lending and the number of businesses that provide quick cash loans or cash advance loans has exploded in the past five years. It is easier to locate a payday loan than it is to locate a hamburger from McDonald's or Burger King, as there are now nearly 22,000 businesses nationwide that offer temporary, high-interest loans.
 

Defenders of the high rates note that the astronomical rate is essential to compensate for those customers who fail to pay. The companies that offer these loans point out that the interest rate, as a yearly rate, is smaller than that of an overdraft penalty applied by a bank if that were expressed as an annual figure. It is an unusual customer that writes a bad check on purpose; most people do not write checks when they know they may not have the cash in the bank to cover them. Banks or credit unions charge bad check fees to penalize you for bouncing a check, and the fee is designed to discourage you from doing so in the future. When comparing loans to bad check fees, the cash advance loan might seem to offer an advantage, but that sort of comparison is pretty much like comparing apples and oranges. Very few banks charge as much as as $60; many, if not most charge half of that. The fees charged by banks are not fees charged for convenience; they are penalties.

For people who can afford to do so, borrowing money from a charge card would be a smarter option, as the rate of interest is much lower; normally in the 20-30% range. Payback terms are much more flexible for credit card loans as no bank will demand full payment, along with interest, in a mere two weeks' time.

A great number of quick cash customers have no credit and taking out a loan from banks is available to them. Comparing high-interest loans to penalties for writing unfunded checks is hardly a good example of how expensive lending is a relative bargain. The quick cash shops are absolutely correct when they note that they offer loans to individuals who have few alternatives.