Considerations About Short Term Payday Loans

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Advantages And Disadvantages Of Payday Loans
Part 1 USA Payday Loans And Their Regulation
Part 2 Payday Lenders And Common Practices
Part 3 Can A Payday Loan Help You?
Part 4 Considerations About Short Term Payday Loans

There are already some alternatives on offer instead of payday loans. However, if you are unable to borrow money from family or friends and are not in a credit union, cannot qualify for an installment loan or have no means of raising any extra cash, a payday loan may be the only choice left. In this article we look at:

  • If payday loans will last
  • What could substitute payday loans
  • Potential payday lending reforms

The backlash against the loans has been considerable and much of the criticism is warranted. However, if legislation goes further in deterring lenders, there may come a time when this borrowing option will be completely withdrawn. And, it is not just those on a low income who make use of payday loans. There are an increasing number of middle class Americans who have been squeezed with no wage increase, little or no savings and every increasing bills.

Bank regulators have insisted that institutions take fewer risks since the 2008 crisis

Unlike most other industries, there is little competition amongst lenders who all charge towards the top end of any capped interest rate. The demand for payday loans is such that lenders stick together and can dictate what they can charge within the state regulations. So, what would happen if the regulations become too onerous for lenders and this emergency form of funding disappeared?

What could substitute payday loans?

If the payday loans industry were to be eliminated from existence where would people in desperate need go for help? Some economic experts have said that those who could not fall back on family and friends would be forced into bankruptcy and that this would at least make the inevitable happen sooner.

Others have suggested that banks should start to make small short term inexpensive loans available for emergency situations. This would force the payday loans into mainstream banking and would eliminate the high interest rates and also the stigma associated with borrowing from a payday lender.

A couple are considering their options with respect to payday lending and overdraft protection insurance

Unfortunately at this time the banks do not want to do their part as this involves more costs and less profits. Banks are also making a tidy sum out of payday loans as well as offering overdraft protection insurance as an alternative. There is also the fact that bank regulators have insisted that the institutions take less risks since the financial crisis of 2008. Credit unions have played a small part in giving some assistance but this is not a national solution.

Potential payday lending reforms

In the end, instead of getting rid of payday loans, it may well come down to making some more reforms including capping interest rates and reducing the amount of fees and the amount of loans allowed. The Consumer Financial Protection Bureau has proposed some new rules. These include a rigorous test to see whether an applicant can actually afford to pay back the loan without leaving themselves short of money for other essential payments.

Credit unions have played a small part in giving some assistance but this is not a national solution.

There is also a suggestion that lenders should not be allowed full access to the borrowers bank account. Payday lenders have insisted that these extra rules would cut off the supply of small loans so the argument will continue for some time.

No clear cut answers about payday lending

As we have seen, there is no clear cut answer when it comes to taking out a payday loan. When used as they were designed to be used, a loan can help you out of a tough patch but can also create a situation that is ten times more problematic than the current one. The best advice is to weigh up all the evidence before taking out a payday loan, make sure it is repaid on time and only opt for this kind of borrowing if the situation is an emergency.

Advantages And Disadvantages Of Payday Loans
Part 1 USA Payday Loans And Their Regulation
Part 2 Payday Lenders And Common Practices
Part 3 Can A Payday Loan Help You?
Part 4 Considerations About Short Term Payday Loans

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