Payday loan surveys about borrowing can be misleading

Cash advance loan studies are somewhat misleading and ought to be viewed suspiciously, as the industry can't hide the fact that the lending options are still expensive ways to borrow cash. The short-term lending industry is quick to offer surveys that shows that their financial products are a better value than bouncing checks or borrowing from credit cards.

It is easier to locate a quick cash loan than it is to locate a hamburger from Wendy's or Burger King, as there are now almost twenty two thousand stores nationwide that offer two-week, high-interest loans. Following the guidance of the Bush administration, many states have eliminated their laws against high-interest lending and the number of lenders that provide cash advance loans or quick cash loans has exploded in the past five years. The cash advance loan industry is certainly a profitable one.

Payday loans or quick cash loans are certainly expensive; the 400% annual rate of interest is much higher than the interest rates charged by bank card loans, which normally run less than 30% per year. The concept of the "cash advance loan" is that it will tide the borrower over until their next paycheck. If the individual cannot repay the loan in 14 days' time, he can usually "roll over" the loan by paying the fee once again. The profits from the forty billion dollars offered in cash advance loans or quick cash loans each year are astonishing. The standard interest rate on a two-week quick cash loan is approximately 400% per year. The borrower pays a charge that comes to about fifteen dollars per $100 borrowed over the fourteen day duration of the loan, which averages about $300.

Apologists for the high rates of interest point out that the astronomical interest is necessary to make up for those borrowers who fail to pay. The lenders that offer these loans note that the interest rate, as an annual figure, is less than that of an overdraft penalty charged by a bank if that were expressed as a yearly rate. The fees charged by banks aren't fees charged for convenience; they are penalties. Banks or credit unions charge bad check fees to penalize you for writing checks with insufficient funds, and the fee is designed to discourage you from doing so in the future. When comparing loans to overdraft fees, the quick cash loan might seem to offer an advantage, but that sort of comparison is pretty much like comparing apples and oranges. Very few banks charge fees as high as sixty dollars; many, if not most charge half of that. It is a rare customer that writes a bad check on purpose; most people do not write checks when they know they do not have the money in the bank to cover them.

Payback terms are a lot more flexible for credit card loans as no bank will require full payment, including interest, in only two weeks' time. For people who can afford to do so, borrowing against a bank card would be a cheaper choice, as the rate of interest is much cheaper; usually in the twenty to thirty percent range.

A lot of cash advance customers have little or no credit and borrowing from banks or credit unions is unavailable to them. Comparing usurious lending to penalties for writing checks against insufficient funds is hardly a sound example of how high-interest lending is cost effective. The cash advance companies are almost certainly right when they point out that they offer loans to people who have few other options.