21 Apr A Payday Loan is Worth the Fee
As a Canadian payday lender one of the most commonly asked questions is ‘why the heck are cash advances so expensive?’ Most people often think that lenders are awful people who aim to profit from the less fortunate. This is simply not true. This theory almost always comes from the same people who do not understand how a payday loan is intended to work. It’s easy to make an incorrect conclusion when you look only at the APR rate on these types of loans. In this industry, payday loans range from 250% – 500% APR. The following post will aim to explain why payday loans are not over priced or excessive.
For starters, people need to understand that an online payday loan isn’t the enemy; failing to repay your loan is. That being said, why would anyone take out a loan that they can not afford to repay. Like many things in life, responsibility plays a big role. A cash advance is intended to be used for short-term financial emergencies. A payday loan should not be used often; once or twice a year at most. Chances are you won’t have more than two major financial problems a year anyway. Further, the interest rate on these loans are high but they only become exceedingly high when used repeatedly or irresponsibly. Payday loans are to be re-paid in a short time frame, usually between 7 – 30 days. The reason why payday loans are to be repaid quickly is because the rate of interest incurring on these loans are quite high. However, if you pay back your payday loan on-time you won’t have any financial problems arising from your loan. Payday cash advances only become expensive or overpriced when borrowers fail to repay their loans.
Secondly, a payday loan, whether it is from an online payday lender or from a store-front lender, is an unsecured loan. An unsecured loan is a loan which has no guarantee. More specifically, the lender does not have any assurance that they will ever get their money back. Often, payday loans are issued without a credit check and no assets are collected for collateral. Giving out a loan under these conditions causes it to be a high-risk investment. The odds of the lender not recovering their funds is extremely high. Thus, the interest rates attached to these loans reflect the associated repayment risk. Based on the unsecured nature of payday loans, the rate of interest is warranted.
A lender typically issues funding immediately, it usually takes less than an hour. This quick service delivery and lack of invasive credit and reference checks should be considered when debating whether the loan fees are excessive.
Lenders have to pay personnel like; debt collectors, administrators, clerks, customer service reps, investors, hosting providers, IT, designers, marketing experts and financial advisers. Not to mention the cost of rent, taxes and office supplies. Like many businesses, operating fees are factored into product and service prices. For these reasons, It is believed that many people either do not understand or they simply forget that operating a financial organization is quite expensive.
To conclude, there are many expenses and risks associated with lending people money. Payday loan fees may seem excessive if you fail to factor in the risk and various expenses involved. It is fair to declare that if a payday loan is used responsibly and irregularly that their fees are not overly expensive or excessive.