Cash Advance – An Overview

A couple are researching their options for loans
Do Cheap Payday Loans Exist?
Part 1 Cash Advance – An Overview
Part 2 Are There Low Interest Payday Loans?
Part 3 Applying For A Cash Advance Online

Short term loans, often called payday loans, emerged into the financial market place in the early 1990s. This kind of loan is unsecured. That is, there is no need to put up any collateral against the money. So, if you don’t pay you cannot lose your home or car. In this article, we take a look at:

  • How the financial crisis shaped lending demand
  • The effect of the payday loans industry
  • Changes to regulations of payday loans

At the time when payday loans arrived into the financial industry, there was a demand that was not being met by mainstream banks. When small local banks were merged with large institutions during a period of deregulation, some people had little option when it came to getting credit.

Payday lenders seemed to offer a way out of this dilemma and during the 1990s there was a steady growth in the number of lenders offering short term small dollar loans.

The financial crisis and personal lending

When the financial crisis took hold in the late 2000s, the number of lenders increased again due to the powerful demand from low income individuals and families who had no access to mainstream lending like personal loans or credit cards.

The payday loan industry provides jobs for around 50,000 citizens

In addition to this, the lack of savings, increasing cost of overdraft charges, fees for bounced checks and charges for late payments created a situation where many people were so pressured that they sometimes needed cash urgently simply to cope with an unexpected bill.

Lawmakers have put into place some safeguards for consumers who use payday loans but as the regulations differ from state to state, in some regions payday loans are simply unaffordable and have caused an increase in family debt.

Lending – A high profit industry

Although there is clearly a need for payday loans, an analysis of the short term loans industry reveals that high profits are the name of the game. No lender is in the business for reasons of philanthropy. But, equally some lenders are charging unreasonably high interest rates that make it easy for families to become mired into debt.

A group of short term loan experts are at work

Over 20,000 lenders are located all across America although in certain states payday loans are illegal. Around $40 billion is loaned out each year in short term loans and most of this money goes to families who are experiencing a cash flow problem.

In addition to providing profits to lenders, the payday loan industry provides jobs for around 50,000 citizens and these jobs help to contribute to the US economy in state and federal taxes.

The expansion of the payday loans industry has led to criticism mainly from the CFPB about the affordability factor for borrowers that few lenders take into account.

Over 20,000 lenders are located all across America although in certain states payday loans are illegal.

Lenders have their own association that lobbies on their behalf. The Community Financial Services Association was founded as a prop to help lenders make a success of their businesses and over 50% of lenders are members.

Changes to regulations of the loans industry

The CFPB is set upon implementing changes to the loans industry that will stop lenders from using loopholes that allow them to charge rates outside the regulations. It is hoped that the changes will help to reduce the number of loans that are simply unaffordable.

A couple read and sign a loan agreement

The rules will address issues surrounding car title loans, installment loans and will seek to limit the maximum amount of interest that can be charged as well as insisting that lenders make an rigorous affordability check on each applicant.

Whilst lenders are adamant that these changes will make the loans less profitable thereby reducing the number of available loans, critics are only concerned with preventing people using high interest loans that allow them to fall deeper into debt.

Any continuous cycle of debt puts at risk your home and your future so if you are thinking about taking out a payday loan it is vital to look at the affordability factor before you sign up to any agreement.

Do Cheap Payday Loans Exist?
Part 1 Cash Advance – An Overview
Part 2 Are There Low Interest Payday Loans?
Part 3 Applying For A Cash Advance Online

About the author

Mark Larsen

Mark Larsen has worked in the finance industry for over 20 years. Over the course of his career, Mark has amassed experience in personal finance and especially short-term lending. He shares his valuable insights on onlinecreditusa.com