Payday Loan Rates

Payday loan rates are under major scrutiny. I do not intend to break down the rates for each state, nor will I go into the legal ramifications if a company is caught charging higher rates within a specific state. There was a past comment on an article that outlines the rates in each state. There is a link in the comment which will allow you to view the current payday loan rates within each state. I suggest you view the link if you are interested in looking at an advance.

As we uncovered in previous articles, payday loans are very expensive. In some cases a lender may charge upwards of over 400% for a cash advance. While this may seem to go against usury laws, there are many states that allow companies to charge exorbitantly high rates for their money. There are two sets of arguments.

There is an argument from the perspective of the lender. Payday loan companies argue they have to charge high rates because many people default on their loans. The industry argues without the high rates companies could be in jeopardy.  It is also important to understand the vast majority of people receiving payday loans don’t pay the full amount back on their next paycheck. This will ultimately increase the amount the borrower will have to pay back. There are some states that will allow a lender to rollover payments which in turn result on more interest and a higher payback.

I have looked at several consumer sites and they believe payday loan companies aren’t telling the whole truth. While the industry argues rates are high because of defaults, some consumer advocacy groups would beg to differ. There were two studies that I read which stated that payday loan company’s only write off a small percentage of their loans each year. While these groups argue that the percentages are much smaller than what the industry is alleging, there is very little information or statistical data on this topic. In fact, the two studies that I came across were from the mid to late 90’s.

As we mentioned in a previous article, each state makes up the laws that oversee the industry. These laws are being disputed on both sides of the aisle. If a company violates state laws they could be forced to pay harsh penalties and possible legal recourse.

Consumer groups recommend an alternative to paying high rates for payday loans:

• Negotiate payment plans with your creditors – The problem is that most applicants aren’t trying to get a payday loan to pay off their creditors. They are trying to get an advance to pay for groceries, gas, gas and electrical bills and other expenses. If you are trying to secure an advance to pay off credit card bills etc. there is no question you should try setting up a payment plan instead of getting an advance.
• Secured credit cards – The problem is that most credit card companies will not lend money to a person that has already defaulted with another credit card company.
• Get an advance from your employer – I believe this is probably the best alternative however some people may feel uncomfortable asking their employer for an advance and some companies may not provide advances to their workers.

I guess when I look at the industry as a whole, I can understand both perspectives. I also know if a company has a choice to lend at a lower or higher rate, they will probably always charge the higher rate. The rates for payday loans are likely to change; it’s just a matter of time. Whether the change has a negative impact on the borrower or the lender is to be seen.