Why Choose a Payday Loan Over a Bank Loan?
Easy approval, no credit check, enough money to bridge a borrower’s cash flow gabs between paydays. Why would one not choose a payday loan over a bank loan? Typically the loan is given in cash and secured by the borrower's post-dated check which includes the original loan principal and accrued interest. The borrower usually pays back the loan on his or her next payday in which the lender processes the check traditionally or through electronic withdrawal from a checking account. One might unfavorably compare payday loan providers to loan sharks due to their high interest rates.
Those who use payday loans are often perceived as being members of a lower socio-economic demographic who have few options other than such loans. Some people believe payday loan providers take advantage of the poor and those who have no understanding of the value of time and money. A defender of high interest rates would probably note that payday loan processing costs do not differ much from their higher-principal, longer-term counterparts such as home mortgages. The belief is that conventional interest rates at such low dollar amounts and shorter terms would not be profitable. They believe that interest on a payday loan amounts to less than the costs associated with bounced checks or late credit card payments. They argue that the interest cost accurately reflects increased risk of default.
Those who use payday loans are often perceived as being members of a lower socio-economic demographic who have few options other than such loans. Some people believe payday loan providers take advantage of the poor and those who have no understanding of the value of time and money. A defender of high interest rates would probably note that payday loan processing costs do not differ much from their higher-principal, longer-term counterparts such as home mortgages. The belief is that conventional interest rates at such low dollar amounts and shorter terms would not be profitable. They believe that interest on a payday loan amounts to less than the costs associated with bounced checks or late credit card payments. They argue that the interest cost accurately reflects increased risk of default.
