REASON FOR PAY DAY POPULARITY
Here are the reasons:
- As a business model, it is proven to be resilient and profitable. Diverse portfolio, small exposure, short term nature of the loan and catering to a sector few traditional lenders touch.
- With Americans’ incomes not keeping pace with inflation, and increasing illegal immigration, there is growing need for Payday type loans as more and more people live from paycheck to paycheck.
- While there is State level regulation on Payday practices, this form of lending is highly unregulated and as yet unchecked in any real form by Federal government. And State supervision is spotty. So no wonder new Payday type lenders are cropping up all over.
- Because of small loans and not much oversight, entry barriers are low.
PROS AND CONS
- Easy terms, no collateral
- Negative credit history is not an obstacle
- Very local
- Caters to a segment of population which has no other alternatives to cover their expenditures or budgets
- Very high rates of interest (although many States have Usury laws, so Payday lenders skirt it by calling these “fees” or “service charges”
- Addictive. Since money is easily available, there is less incentive to save and forgo certain expenditures
- Does not improve borrower’s credit history–whereas getting credit from a traditional source, even a store, and paying it down regularly will actually improve your credit rating and open up other doors to borrowing
WAYS TO AVOID PAYDAY
- Get in the habit of budgeting your income and expenses and do it conservatively. This will help you manage your cash flow and enable you to predict it—that way you can find ways to either boost your income or reduce expenses. It also will help you to prioritize your expenses
- Diligently note down your expenses
- Try to put internal limits on when to use a credit card. I advised someone to not use a credit card for single-shop charges below $25. It is amazing how quickly she realized money was flowing through her hands. She never appreciated this when flashing credit cards, and making minimum payments.
- Pay off all or most of credit card balance each month. Credit card companies are only a slightly softer version of Payday lenders.
- I prefer loan from a friend or from family although I realize it is not always possible
- Treat Payday as the absolute last resort, before bankruptcy. That will help you strengthen your resolve to avoid them as long as possible
- Get Credit Counseling. Like someone who wants to lose weight must seek professional help, if you are unable to balance your checkbook, you need to see a professional financial advisor.
- See if you have an asset that can be monetized. It may be jewelry you do not use or a house bigger than you can afford. This is the absolute first step to repairing your financial health.