More and more these days, I see people calling out companies that offer payday loans. “They’re evil!” “It’s predatory lending!” are the words that you’ll hear anytime you mention payday loans. What do I think? It’s all a load of bull, plain and simple. There is nothing inherently evil or wrong about payday loans. While I won’t be taking out payday loans anytime soon, I don’t believe that they constitute predatory lending. Remember, payday loans are some of the highest-risk loans, to the highest-risk clients around. The companies willing to take that risk deserve to earn an excellent profit for their efforts.
Let me put this another way. Let’s say that you are considering two different investments. One is very low-risk, and has averaged a 5% return over the last 10 years. The other choice is a very high risk investment – over the years there have been crazy high spikes in value, but there have also been extreme drops in value. The average return for this investment has been 14%. If you’re going to invest in stock B, you would certainly want the chance to earn a higher return, wouldn’t you? Investing is all about risk and tolerance. If you are willing to bear a higher risk, you deserve the chance to reap greater rewards. If you’re more conservative, your return is likely to be less spectacular.
Moral of the story
Payday loans are not a good deal for the consumer. There, I said it. There’s no question that you’ll get socked with a hefty fee & interest rate if you take out a payday loan. There are almost always better ways to resolve your financial situation than a payday loan – understand that they are your last resort. If you are short on cash now, what makes you think you’ll be able to comfortable pay off the loan + interest in a couple weeks, and still have money to live on? Think long and hard before going this route, and explore every single other option first.
Non-Profit Payday Loans
Tricia from Blogging Away Debt wrote recently about Non-profit payday loans. They do offer better ( though still extremely high ) interest rates, which puts things into perspective a little bit. If a non-profit organization must charge 252% interest to cover their costs and avoid a loss ( while not making a profit ), then the higher rates charged by for-profit businesses don’t seem as extreme. Just something to think about.