The incredible growth of shops that provide payday loans has amazed legislators and consumer advocacy groups, who are concerned, with good reason, about the fact that people are lining up to borrow cash at interest rates of up to 500% annually. Although stores that provide payday cash advances amounted to just a few thousand stores in 1999, they now number over 20,000. In some cities, there are multiple stores on just one block, and despite the large number of businesses that provide them, there is no level of competition in offering cash advance loans. Every store in a given city is asking exactly the same interest rates as every other shop.
The interest rates aren't inexpensive. In return for borrowing a sum that ranges from $100 to $500 for two weeks, a person has to pay back the borrowed funds along with a fee that ranges from $10-30 for each $100 borrowed. If he or she cannot pay back the borrowed funds after two weeks, the cash advance can generally be renewed for another two weeks, if the customer pays the charge again. The short term of payday loans often makes it hard for people to pay back, and a lot of of them wind up repaying the fees over and over. Or they sign up for a different payday loan from another store as a way to pay back the first one. And yet, despite the high prices, the companies are successful and these loan companies offer billions of dollars in cash advances each year.
If the cash advance are so expensive, why are the stores so successful? Why do so many people apply for cash loans?
The answer can be explained in one word - convenience. Taking out a bank loan would save individuals a lot of cash, but bank loans along with other, more conventional, kinds of loans require some resources that many would-be borrowers simply don't possess. The lure of cash advances can be attributed to the typical requirements of the stores that offer them, which often require no more than these:
The borrower be a person of legal age
Have a current job that they have held for a minimum of 90 days
Have a checking account.
Be an U. S. citizen.
Have no other outstanding payday loans from that shop (in a few states, from any other store.)
That's it. You can get a loan with no credit check. Loan companies aren't looking to see your credit score. They do not care about other advances you have. They do not care if you have a recent bankruptcy. They do not care if you have paid your telephone bill late three times in the last six months. If you satisfy the conditions above, they will most likely lend money to you, which is something that no bank will do with as little information as the minimum requirements that most advance loan stores require. It should be no real shock that these stores are successful; they are going to take nearly anyone's business.
That business includes a price, though. That price is an average rate of interest of 391% per year. The success of these shops indicates that convenience and ease of use is an important consideration in borrowing cash.