Payday Cash Advance Loans: Should they be outlawed?
Payday cash advance loans are considered too expensive to make them legitimate, according to many consumer protection agencies and some lawmakers. That’s because while typical loans carry interest rates that are in the 5-10 percent APR range – and high-priced credit card cash advances often charge steep interest of 18-25 percent APR – these payday loans routinely charge about 350-400 percent to their customers.
Payday loans are special loans that let the borrower take out a cash advance on their paycheck – before payday. They get charged high interest rates for these fast cash loans, which are then repaid once the person gets their paycheck. So most people who use these payday cash advance loans are between paydays but just need some quick cash to bridge the gap and get some money in their pockets until the next check from their employer comes.
Because a person might pay $15 to get an advance of $100 for a couple of weeks, the loans appear to be convenient – and they often times are. Many people who use them do so to avoid missing a payment or they use them to cover a check that would otherwise bounce. Missed payments and bounced checks can be very expensive – and if one bounced check costs $25 or more but it can be stopped with a $15 cash advance payday loan, then that can seem like a bargain.
But critics complain that most of the people who use these loans are already in the lowest income brackets and have little or no savings to fall back on in an emergency. They wind up paying extraordinary rates, which pushes them deeper into poverty. And many people get in a bad habit of relying on payday loans between each and every paycheck, which means they are paying a very stiff fee and losing a considerable amount of their income due to interest debt.
The controversy continues, but meantime financial planning experts advise that consumers not use these loans if possible because they are just too expensive. The money spent to borrow this kind of loan could be saved to create an emergency saving fund, which is much smarter financial budgeting plan.
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