September 12, 2011

Payday Loans – A Better Alternative Than Overdraft Fees

Payday Loans have been getting a bad rap lately for what some argue are outrageously high interest rates and predatory lending practices, however when payday loans and their costs are stacked up against the fees of traditional banks, a different villain begins to appear.

The majority of payday lenders offer short-term personal loans that carry an average cost of between $12 and $22 per $100 borrowed. (a simple interest rate of 12%-22%). The payback term is typically two to four weeks and the payments are automatically debited from the same consumer bank account that the funds were deposited into at the time of the loan. Opponents of the payday loans argue that if the percentage rate on one of these loans is amortized over a full one-year period, the annual percentage rate (APR) can reach or exceed 200%. Certainly an APR of 200% does seem outrageous, but that also begs the question of, "Why would opponents of payday loans – or anyone for that matter attach an annual percentage rate to a loan that only covers a two to four week period?" We begin to see the self-serving purposes of the real villain when this question is answered.

Bankers and credit card companies are the real faces behind the organizations who lobby against payday loans and cash advances. They pretend that they have your best interest at heart and are trying to protect you, however what they really want is to stomp out their main competition to get at your hard earned dollars by way of their hidden fees and extra charges.

As a real world example let us pretend that if a person with the standard bank account gets low on money and they require another $300 for bills or other expenses to get them by until their next paycheck. If they need the money fast, they can't just go into the bank and ask for it without a bunch of paperwork and certainly can't get it without great credit. If there isn't an option to get a loan the person may just write checks and hope that they can figure out how to get more money into their checking account before the checks hit the bank. If those bad checks get to the bank, they will typically charge the consumer about $35 each as an overdraft fee and they may even charge late fees on top of those fees too.

If we assume that the consumer writes 3 small checks with no money in their account and those checks total a measly $100, the bank can charge that person $35 per bad check for a total of $105 in overdraft fees. That really amounts to a short-term loan at 105% interest. If we extend that interest rate out over an annual term like banks do when they talk about payday loans, it's the banks who are charging in excess of 1,200% for their overdraft fees that act the same as a loan. They can still add other late fees on top of that too.

To make matters worse in this hypothetical bank account overdraft situation, the consumer will most likely be charged between $20 – $45 by the three vendors to whom the bad checks were written, therefore the cost for NOT having access to a payday loan climbs even higher. Additionally, knowingly writing a bad check is against the law and punishable by jail time in most states. Despite what the big corporate banks and their lobbyists might wish for you to believe, when we take an objective look at the real world of finance, it starts to become very clear that payday lenders actually offer a valuable service to middle and low-income consumers who otherwise have limited options with a standard bank account.

"Normal banks can't offer fast payday loan services the same way we can and if we weren't actually helping people who need help, we couldn't stay in business now could we?" stated William Janus of Missouri Payday Stores. "Most people use our loans in a wise manner and we're glad we can help them when they need it the most."

The lobbyists will continue to fight against payday loans, but it's important for consumers to know that the people behind this lobby are bank owners, credit card providers and the government officials who they bribe to support their excessive fees and interest rates. They try to hide under the flag of being a "Do Gooder", however they are really just villains in disguise.

You still need to be careful when selecting a payday loan provider and finding a provider that has good customer reviews and companies with no complaints registered with the BBB or the FTC is a good way to start your search for a good payday loan provider.

Learn more about Payday Loans with no registered complaints, Stop by Christian Rogers's favorite review site where you can find out all about Payday Lenders who have no registered complaints on file.

Filed under Personal Loans by Christian Rogers

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