Payday loans have been criticized by many as poor financial choices. These loans are also known as payday advances, salary loans or payroll loans. Critics say that people's interest is high, and once people start borrowing money in this way, they will get into trouble. These statements are correct, but not always. Just like anything else in life, if someone chooses to abuse help or abuse many other good options they usually have, things will eventually get worse!
Let us solve some problems. The first thing to focus on is the high interest rate. Indeed, the interest rates on these loans appear to be astronomical compared to most traditional lending rates. But let's take a closer look.
When a person gets a $100 payday loan and spends $20 as a loan, many people will criticize it as a form of predation and a form of predatory lending. They believe that this is unfair to those who may not fully understand the cost of such unsecured loans. They may say that cash advance loans are too expensive compared to other loan products or services, and payday loans should be avoided.
Now, what happens when your car mechanic is repairing your car and he orders parts for you? Assuming the wholesale price of the part is $100, the suggested retail price for the part is $150, which is the fee he charges you. Now, he only has a few minutes or even hours to own this part of the assets, but he still profits twice from the payroll lender. The mechanic minimizes the risk of part failure, so he must repair it again for free. The risk of borrowing money from payroll loan lenders to other lenders is greater.
think about it. If you and your family ordered fresh food in the restaurant during the day of the night to prepare meals, and your meal cost them $100 of raw food, your bill becomes $150 [plus Tips!], then why is this practice not taken seriously? This restaurant only has a few hours of food before serving food, but they can increase their income by $50 to get a small profit.
Somehow, when other types of businesses get more revenue on the products or services they offer, most people seem to think of them as free companies, which is perfectly acceptable. in reality! Our society relies on the goods and services it provides to meet the needs of the public. Everyone knows that they must make some money at each level, otherwise no one will do this! In essence, we are happy to pay because we have what we can't meet!
Using this newly discovered point of view, why should unsecured lenders do this for free? They have to pay the bill and they need to make some money, which is the same as any other form of business. Because they are at higher risk, they also need to make up for the losses. Do you think that the insurance fee you paid is too small? May not. When insurance companies suffer huge losses, they raise interest rates to keep profitable. Just like short-term loans, this is only part of the cost we pay.
Now, another thing that payday loans are often criticized is that they may be in financial trouble once someone starts borrowing their future income. If someone needs more money than they earn, it is difficult to restore good financials. Once people start using credit to get what they need, they may be in trouble when the bills begin to expire.
Well, does this sound familiar? If someone sees the latest boots on the way home, and only spends $150, is it possible to skip Starbucks one morning a week to save money? They are out of date, will they save $5 a week and wait 30 weeks to buy the boots in cash? Or they will take out their trusted credit card, walk into the store, come out with $150 plus tax, plus debt interest!
When you don't want to cook, you go out to eat. But what if your budget includes dinner at home? You rely on a credit card to pay for dinner. If you don't have extra money and you accidentally drop your smartphone and the display is broken, you can use your credit card. If you have a throat infection, you need to pay the doctor's deductible, or your dog needs to see a vet, or your car can't pass the check without new tires, or your child needs new shoes to go to school, you use you Credit card.
Using your credit card means you will borrow future income. You assume that you will continue to earn enough money to repay credit card and interest and normal living expenses. This is the lifestyle of most of us. We take advantage of our reputation and realize that there is a price to pay for it. We also use credit to help us achieve the quality of life we want and pay for what we need to pay.
For people who don't have a credit card and may not have a good reputation, a payroll loan may be one of their only choices. Believe it or not, these people also need and want. They are hungry, need a safe car, are sick, and children need shoes. They just can't borrow future income in the way possible.
Traditional lenders, especially in recent years, tend to only want the least risky customers and often do not want to do business with typical payroll applicants. A loan applicant needs a stable job and a bank account to qualify for this type of loan. These two characteristics may help indicate that a potential borrower is likely to try to do the right thing.
In short, these unsecured loans are not for everyone. However, for many people who need money and can't turn to the hard work of traditional lenders, payday loans may be the perfect solution!