There are those who look at the different branches of payday loan sites growing all over America and ask how and why these businesses are successful. Some would even say these businesses are doing a disservice to the American community by offering anyone a personal loan.
Availability for payday loans has become increasingly accessible within the last few years. This is because these short-term loans provide a service for everyday citizens that businesses like banks and credit unions cannot. This service is something that the public needs and is obviously using or else more payday loan locations would not be established all across the continental U.S.
If you have ever tried to take out a loan of $100 to $500 you know that banks and credit unions frown upon that small amount of cash. Many do not even offer a loan this small because they realize that it is a short-term loan that they will not earn substantial return on.
Banks and credit unions also need a reason to invest in their borrowers. Needing the money to pay the bills or fix the car are almost never good enough reasons to borrow money from one of these institutions. These businesses thrive on long-term large money loans, like those you need for a home, a business or a car.
Banks and credit unions know that they can make significant money on low interest rates because the loans are at least in the thousands, if not tens and hundreds of thousands. Why play with little cash when they can thrive on big cash?
Another reason that banks and credit unions are often inaccessible is because they can't trust those they are lending to without their borrowers having adequate credit history. This leaves many of those people that need occasional loans to live, when an unexpected bill arrives, without a safety net.
Thus, the reason that payday loan business survives is because it fills a need that many Americans have, but cannot fill anywhere else.
When a borrower comes to a cash advance location they will not have to explain the reason that they have for borrowing the money they need. Payday loans require none of this personal information, which can be potentially embarrassing. That means you can borrow money for whatever needs you have at the time.
The application process for a short-term cash advance is really fast and only involves the exchanging of some identification information. Credit is never an issue that is brought up and loans are not denied on the basis of low credit. This allows those who have low credit to get the money they need when emergencies occur.
One of the reasons that payday loan companies get judged as a disservice to society is that they have high interest rates. The APR of a payday loan location is around 400%. This sounds like a lot, but it is important to remember that these companies specialize in short-term money loans.
Since cash advance companies deal in small amounts of cash loans they make their money by charging normally about 15% a week of the total bill. The expectation is that the lender will be paid back by the next time the borrower receives a pay check. As long as the money is paid back quickly the cost to the borrower is minimal.
It is easy to discriminate against a company that is not understood. The reality is that payday loans give something to the community that other lenders do not. Because they are needed by millions, payday loan locations and companies will continue to increase as the need for them does.
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