Advocates of payday loans point to the fact they grant access to money for people who may have poor or no credit.
There are many reasons people use payday loans, in spite of negative media coverage
For a start, they can be easy to access. Indeed a lot of cash advance lenders offer cash within 24 hours and immediate lending decisions.
Some payday lenders are available 24/7 days a week and applications can be made online.
Traditional loans can take a chunk of time to make applications and then take an age to make a decision.
One of the reasons for this speed of access is that payday lenders require less than other loan operators, who want Social Security numbers, photo ID, proof of income and credit checks. They will then take the time to verify a person’s ability to repay.
In general, what is needed to apply for a payday loan is to be:
- An acceptable age
- Have some form of government-issued ID
- Be in regular work or have another source of regular income
- Have a bank account that is active
Compared to traditional loans where you need to prove good credit, payday loans don’t need to see any proof of credit history. It is a rare case that a payday loan won’t help you build up the credit you require to move into being able to access higher quality financial products.
Payday loans do not need to be secured against any personal property. What this means is that if you don’t pay, the payday lender is unable to seize any property.
However, payday lenders often use access to your bank account as a loan condition. It’s also been known for them to send debts to collection agencies or use courts to recover outstanding balances.
The rise of the payday loan business is down to a problem caused by the rest of the financial system not being reactive enough to handle the needs of people who apply for payday loans. Loans from normal banks require much time, effort and paperwork.
This is the friction that makes it impractical to ask a bank for a payday loan. The majority of payday lenders are able to make cash available on the day of an application. It’s why so many people use payday loans to pay for broken-down cars, unexpected medical expenses or even to pay off their overdrafts.
It is wasn’t for bona fide payday loan outfits then there would still be demand for speedy, low-value loans, but the market would be dominated by unregulated loan sharks.
Payday loan critics often point to high rates of interest that are charged and the fact that some loan companies rollover customer debt and their interest payments, trapping people.
But apart from a few horror stories, the facts are that although rates may seem high, a payday loan’s average term is just a couple of weeks.
Without a good source of payday loans, millions of people would find themselves denied credit, and without credit, many people would not be able to cope with financial emergencies.
