Most people have a
negative perception about payday cash advance loans. There has been a lot of
media coverage for the last couple of years that seems to emphasize on the
negative points of these products without exploring the benefits conclusively.
The bad press that the cash advance loan industry received and is still
receiving is very much biased and should not be relied on. In this article we
will look at the common faults that are highlighted and also balance the
argument with the inherent benefits that the service provides to borrowers.
The first negative
point that you hear about cash advance loans is that they are expensive. For a
$1000 loan, you may be charged $50 after a month. These are normally the
quantum that cash advance loans go for. Rarely does a cash advance loan exceed
$1500. The negative press will tell you that this loan is equivalent to a 60%
p.a. loan from a bank if you look at it on a per annum basis. Although this is
technically correct, it is a big mistake to value cash advance loans in this
manner.
It is first a mistake
because cash advance loans are designed to be short term loans which are to be
cleared in less than a month. I have yet to see a case where someone takes out
loan after loan for a year. It simply does not happen in real life. If you look
at it as a product that it is indeed to be, namely a loan with a duration not
exceeding one month, the interest rate is actually only 5%. If you look at it
the proper way, these products are actually relatively cheap for the
convenience they offer.
In the grand scheme of
things, $50 to pay for emergency cash in your bank really isn't that expensive.
For most of us $50 is certainly much more affordable than a negative post on
your credit statement. It is certainly cheaper than to have to pay for late
fees or to incur huge penalties just because you do not have to that extra bit
of money in your account to settle your outstanding debt. It is also cheaper in
comparison to the face that you might lose from asking your friends or
colleagues to lend you some money to keep your ends tied.
In addition to the
"price" of cash advance loan products, the negative media has also
concentrated on the rigidity of these products. We actually think that this is
a benefit. The rigidity serves two purposes, the first and the most importantly
is to enable companies to not have to go through severe and often times
crippling rules that govern larger lenders. With this, many smaller companies
can be set-up and allows this service to be rendered to more people. The second
purpose is to limit the exposure of clients to excessive interest rates.
Although clients can request for a "roll-over" if they don't have
enough money to settle their current tenure, it isn't as easy to do as most
would think. It is up to the lender to approve or decline the request and the
borrower absolutely has to make the request. There is no keeping quiet and
hopping they will roll it over for you.
There has been much
finger pointing that the cash advance loan industry is also set up to take
advantage of people who are in the lower income group. Although it may seem to
be the case initially the true view is actually obscured by the fact that the
largest cash advance loan amounts are only $1500. It is generally only the
lower income groups that would need a loan of such a small amount. Higher
income groups would generally require larger loans which cash advance loan
companies simply cannot cater for. It is also proven that there are higher incidences
of financial mismanagement amongst the people of lower income groups and this
can also make it seem that cash advance loan companies are trying to take
advantage of them. The fact is that cash advance loan companies are providing a
service and it is very much up to the customer if they want to use it. The
terms are clearly stated and are very easy to understand unlike some loan
products from larger finance institutions.
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