The payday loan industry has been slammed in the press for charging excessive interest, but the truth is, the lenders charge a fair fee for the exclusive service they offer. If you think about it, where else can you get a short term loan within a few hours? Where can you get an unsecured loan if you have bad credit? Payday loan lenders are taking a risk by offering loans to people who have difficulty getting loans elsewhere. So why then are they being slammed by the press?
The problem does not lie with the lenders, the problem is with the borrowers. A payday loan is a short term loan meant only to bridge the gap between paydays in a cash emergency. And lenders advance money in most cases in good faith without even doing a credit check to ensure the borrower's creditworthiness. With the result, many borrowers fail to repay their loans on time, forcing the lenders to charge extra fees which then make the loan costly.
A payday loan should only be used in a cash emergency, and the borrower should ensure that the full amount of the loan is repaid with their next pay check, then everyone is happy and the interest charged, still higher than normal, but reasonable. Compound that interest over a longer period, and it becomes unreasonable. This is what the press is complaining about. But who is at fault here?
There are some people who take advantage of payday loans in a responsible manner. If payday loans were unavailable then these responsible borrowers would suffer. One might say that the lenders should be more responsible and start doing credit checks and asking for collateral like other financial institutions, but then what would make them exclusive? The loan lenders are relying on borrowers to keep their end of the bargain and borrow responsibly.
Payday loans are a saving grace for many people with bad credit scores, and it will be a crying shame if these loans were unavailable. Borrowers are encouraged to only borrow amounts that they can afford to repay with their next pay check and if at all possible, not take out loans and make do with what they have by cutting down on their costs.