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Why Pay Day Loans Are So Very Expensive |
| Date Added: September 09, 2011 09:54:36 AM |
| Author: MTSumner |
| Category: Finance and Investment: Loans |
| Wage Day Advances can be a very useful service for those who have an urgent need for speedy cash to see them through until their next payday arrives. Whether this is because of a cashflow problem, or an unexpected bill, payday loans can help span the gap. Cash advances come at a cost though - and it's a significant one. Payday advances are widely regarded as one of the most overpriced forms of legal credit out there, with immense rates of 1000% or more commonplace. Just why are the interest charges so high? The first thing to point out is that pay day loans are taken up over a fairly short period of time, while the common APR measure of interest charges is designed for assessing how much interest would be charged over a full year. As few payday loans are borrowed for this lengthy period, APR figures are perhaps not the best way of quantifying how costly they are in the real world. Nonetheless, the prices are substantive. You're paying for convenience and speed, as most loans can be placed in your account within 24 hours or less, and also because of the lack of credit scoring you're also in some senses paying for the gambles taken by the lender who may lend money to people wholly unable to pay it back. You're also paying more because the loan companies recognize that customers who need money desperately are happy to spend more than those searching for longer term borrowing and are willing to shop around for a good deal. It is this last reason that is the main one wage advance loans are so pricey - as a group, payday loaners know that they are the last chance of credit for those applying, and so can afford collectively to charge high prices for their doubtless popular services. |
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