A balanced point of view on fees refutes critics of payday loans

July 20, 2010 by shaneP

<p>Interest rates are the issue that payday loan opponents rely on most often. Anti-payday loan activists compare interest rates on paycheck loans with the interest rates for other financial products like autoloans or home mortgages. Payday loan opponents make these comparisons because it's the easiest way for them to support their arguments. An understanding calls for a lot more information than they provide. Grouping payday loans with cars and houses doesn’t make sense, because everything about short term loans is different from long term loans.</p>



<p>Article Source: <a title="A balanced look at payday loan interest and free market principle" href="http://personalmoneystore.com/moneyblog/2010/06/03/payday-loan-interest-market/">A balanced look at payday loans interest and free market principle</a></p>



<p><strong> Cash loans no credit check</strong></p>



<p>Guaranteed payday loans, no faxing pay day loan and pay day companies fill a key niche in the marketplace. Because there is such high demand, many types of short term credit are available from many sources. Throughout the worst recession in history and the presently weak economic recovery, more people than ever need convenient short-term credit for emergency expenses. The market has created the need for payroll loans and comparable financial possibilities, and the market has also helped set a fee structure to make these products viable.</p>



<p><strong> Payday fees nevertheless a value</strong></p>



<p> The free and open market treats payday loans like any other product or service. The primary function of the market is fine-tuning a balance between price and value to ensure a product is sustainable. These rules apply to the interest rates applied to any financial product, from autoloans to mortgages. Because they deliver value for the price, consumers take out many payday loans. Pay day loans companies offer short-term cash solutions because it continues to be worthwhile. </p>



<p><strong> Short-term loans and also the free market</strong></p>



<p> Interest rates are set to achieve an optimum level of customers and profits by banks and car dealerships. If business starts falling off, their rates may be too high and they adjust accordingly. However, banks and auto dealerships that set unprofitable interest rates won’t be around very long. The public would be outraged if the government forced banks and auto dealerships out of business. But strangely enough, that's what anti-payday loan activists would like the government to do to payday loan store, despite the fact that such measures were recently rejected as part of the big financial reform bill. </p>



<p><strong> Right price, right now</strong></p>



<p>For example, let's say a paydayloans costs about $ 15 to borrow $ 100 for two weeks. For millions of payday loans no fax borrowers, that fee is appropriately set, based on the purpose of the transaction. A payday loans no fax, intended to be paid off in two weeks, is priced as a short-term financial solution. To keep away from long term financial issues (i.e. credit damage, repossession) it’s worth it for most people to pay $ 15 within the short term. Millions of responsible payday loan borrowers understand that a loan paid in full at the end of the term is worth the cost.</p>



<p><strong> Comparing apples to oranges</strong></p>



<p>Payday loan opponents use that $ 15 per $ 100 ratio and apply it to unrelated financial products like auto loan financing and mortgages, which use an annualized percentage rate (APR). In this case, the APR on the $ 100 pay day loans would be in triple digits if a borrower strung it out for a whole year. Listening to these arguments, politicians are proposing that APR should apply to payday loan companies, and also the APR on paycheck loans should be capped at 36 percent. While a 36 percent rate of interest would seem unusually high for a car loan or a mortgage loan lasting numerous years, it’s not enough to support small, short term loans lasting two weeks.</p>



<p><strong> The unfair market price</strong></p>



<p>At 36 percent APR, short-term credit would no longer be available to consumers. The Richmond Times Dispatch reports that a two-week cash now of $ 100 at 36 percent APR would net a payday loan company just $ 1.38. A fee of $ 1.38 doesn’t come close to covering the cost of originating a payday loan, let alone a personal loan company companies business expenses like payroll and rent. Payday loan fees are what they're because that’s what it costs the lender to loan. Like any business, profit from the transaction must be part of the equation. Payday loan consumers understand that, although anti payday loan activists don't.</p>



<p><strong>More information on this topic</strong></p>



<p> wikipedia.org</p>

<p> timesdispatch.com </p>

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