Criticism of Payday Loans

PaydayCriticism

There are many people and organizations that criticize payday loans for many different reasons, but a few reasons stand out and keep coming up with critics. There are many people today that are comparing payday loan lenders to loan sharks and high interest rate credit cards. Some people argue that payday lenders target specific types of people: low-income communities, the young, military bases, minorities, etcetera. Not all of these types of people get payday loans or credit cards, but they have become known as a group of people who do not know how to manage money. For that reason they are believed to be the target of payday lenders, high interest rate credit cards, etcetera.

Some people believe payday lenders are like loan sharks in the since that the loan has such high interest rates (most times as high as 250% or more annualized). Many payday lenders say they do not require credit checks. Keep in mind that many lenders are known for pursuing criminal bad check charges though. Payday lenders claim they did not know the check was bad when they tried to cash it. The payday lender more than likely told the customer they would hold their check until their next payday so it would not be a bad check.

There are even a few people that take criticism of payday loans to the extreme. These people have compared payday lenders to drug dealers. They claim that the lenders force their customers to pay off their last loan with a new loan until they are addicted to payday loans, and it slowly bleeds them dry of all of their assets. After doing this to numerous people in one community the lenders move onto the next community. These critics believe the government needs to step in and regulate or even abolition payday loans.

There are also many people that challenge all the criticism payday loans receive. For instance people claim that the interest rates on payday loans must be as high as what they are. If you had a payday loan of $100.00 and an annual percentage rate (APR) of 20% then the payday lender would only be making $0.38 of interest. With that low of an amount generated in interest, it would not even pay for the loan processing costs. So the payday lenders claim they must have at least a 250% APR.

Other people point out that even with a 400% APR on a $100.00 loan from a payday lender you are still paying less than if you bounced a check or had a late credit card payment. This is because you would be paying $15.00 to $20.00 for interest on the payday loan compared to $20.00 to $40.00 for bank fees and another $20.00 to $40.00 for the returned check from the merchant. So if you think about it you would be paying less to get a payday loan than to pay for a check that could bounce or a late credit card payment.

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