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Responding to Payday Loan Critics


Payday loans have received a fair amount of criticism in recent years. Payday lenders are sometimes portrayed as deceptive “loan sharks” who trick innocent consumers into high-interest loans. As with any business, some cash advance companies have questionable business practices, while others maintain high standards. In fact, all lenders, including online payday lenders, are required to disclose the cost of a loan in writing before any agreement is signed. Reliable companies such as Mypaydayloan.com offer full disclosure of the finance charge and APR associated with a payday advance, so there are no hidden costs.

Most of the criticism of payday loans concerns the interest rate that lenders charge. Although the APR on a paycheck advance might seem expensive, it should be remembered that this type of loan is only supposed to be taken out for a short period of time, ideally no longer than 28 days. Therefore, the high APR that critics apply to check advances—also known as the implied APR—is actually quite misleading. Moreover, critics typically fail to place payday advances in context by comparing them to more expensive alternatives that are readily available. For example, many people who have difficulty meeting financial obligations rely upon high-interest credit cards or are subjected to the high overdraft fees that mainstream banks charge. Credit card cash advances come at a much higher interest rate than standard credit card purchases. Some credit card companies charge as much as 30% interest on a cash advance, in addition to charging an additional fee of 3% to 5% to access the cash. Considering these fees helps consumers place the typical APR for a payday advance in perspective so they can make an informed decision.

Cost Comparisons - Payday Loans vs. Other Products

When considering the cost of a payday advance, it is useful to compare it to other common consumer products such as rental cars and movie rentals. The fee for renting a car or movie could seem astronomical when applied to a long-term situation. For instance, a movie rental that costs $1 per day would cost $365 if it were rented for an entire year. A car rental that costs $40 per day would cost $14,600 over the course of a year. However, nobody in their right mind would rent a movie or car for an entire year. Likewise, the high APR associated with a paycheck advance is unrealistic because it is intended to be paid off within two weeks. Just like a movie or car rental, a cash advance comes with a convenience fee that is reasonable when it is treated as a short-term loan. Payday loans are not meant to provide a long-term solution to financial difficulty, but they are a valuable resource in a financial emergency.

Unrealistic Alternatives to Immediate Cash Advances

All too often, critics of payday advances recommend that people with urgent cash needs should seek out alternative forms of short-term credit, when in reality these alternatives can be unrealistic in most emergency cash situations. For instance, some critics suggest that people who need to borrow money to handle a financial crisis should simply ask a family member to help out. Unfortunately, this is not always possible, especially in today’s difficult economic climate. Even if a family member is able to help out financially, it can be emotionally taxing and embarrassing to ask a friend or family member for money. These feelings would only be exacerbated if you were unable to pay the money back in a timely fashion. A major advantage of using a cash advance service like Mypaydayloan.com is that your transaction is entirely confidential, and there is no need to tell friends or family members that you are having a hard time meeting your financial obligations.

Another option some people recommend instead of borrowing money is to pay bills a little late. This is not a wise choice, however, because many credit card and utility companies charge high late fees and reconnection fees. Moreover, paying your bills late will negatively affect your credit. If are trying to improve your credit score to qualify for a mortgage to purchase a house, for example, opting to pay a bill late or not pay it at all will have extremely negative consequences. Late payments can be reflected on your credit history for years.

It would seem that a bank loan would be a good choice when you need to borrow a small amount of money. Since most banks place a heavy emphasis on your credit history, though, it can be difficult for people with poor credit to qualify for a loan. One of the main benefits of payday loans is that they do not require a credit check.  Paycheck advances are much simpler to obtain than bank loans. You can apply online anytime, and your loan money will be direct-deposited into your bank account by the following business day.

The Benefits of Payday Loans

Paycheck advances have been proven to be quite beneficial on a broad economic scale, though their positive attributes are commonly disregarded. In 2009, the University of Chicago School of Business conducted a study that assessed the impact of payday lenders in areas that had experienced a natural disaster. The results showed that in natural disaster zones where consumers had ready access to paycheck advances, they fared significantly better than those in disaster areas where payday lending was not available. The data indicated that in areas where this convenient and accessible form of short-term credit was available, there were far fewer foreclosures and fewer people were treated for drug and alcohol addiction. Without the option of receiving payday advances, those with poor credit often have no other legal means to obtain much needed cash loans. Therefore, by keeping check advances legal, the community as a whole benefit because payday lenders extend credit to the most vulnerable citizens.

Despite continued criticism of payday lending, it is clear that these short-term loans are invaluable for people who need money quickly in an emergency. Payday loans are not supposed to be treated as a long-term financial strategy, but they are a valuable financial resource for millions of consumers. The key to effectively using emergency loans and cash advances is to pay them on time. Payday advances can alleviate financial troubles quickly, easily and securely. Find out more or apply for a loan with Mypaydayloan.com.