Easy approval, no credit check, enough money to bridge a borrower’s
cash flow gabs between paydays. Why would one not choose a payday
loan over a bank loan? Typically the loan is given in cash and secured
by the borrower's post-dated check which includes the original loan
principal and accrued interest. The borrower usually pays back the
loan on his or her next payday in which the lender processes the
check traditionally or through electronic withdrawal from a checking
account. One might unfavorably compare payday loan providers to
loan sharks due to their high interest rates.
Those who use payday loans are often perceived as being members
of a lower socio-economic demographic who have few options other
than such loans. Some people believe payday loan providers take
advantage of the poor and those who have no understanding of the
value of time and money. A defender of high interest rates would
probably note that payday loan processing costs do not differ much
from their higher-principal, longer-term counterparts such as home
mortgages. The belief is that conventional interest rates at such
low dollar amounts and shorter terms would not be profitable. They
believe that interest on a payday loan amounts to less than the
costs associated with bounced checks or late credit card payments.
They argue that the interest cost accurately reflects increased
risk of default.
© 2006 Payday Loan Information.