Is the Payday Loan Industry's Bad Rep Deserved? Clients say: "We Know What We're Getting Into."
Is the Payday Loan Industry’s Bad Rep Deserved? Clients say: "We Know What We’re Getting Into."
By Lou Carlozo
Money Under 30
Payday loans are often vilified. Well-meaning advice is designed to help unsuspecting borrowers to avoid getting trapped by debt and fees, but — if used responsibly — could payday loans provide a valuable service?
Sometimes, payday can’t come fast enough. As someone who derives income as a freelancer, the game that many clients play goes something like this: “Get my work done, like, yesterday! And as for your check, our terms are 90 days net, unless the payroll person has the day off and forgets to file your invoice.”
If monthly cash shortfalls have become a way of life — or make you feel like you’re hanging on just to pay the bills — perhaps you’ve used (or once remotely considered) a payday loan service.
As the name implies, these loans are cash advances on a paycheck, and meant to be used for a period of about two weeks until your funds arrive from work. For this convenience, you pay a fee that might run around 15 percent per $100 borrowed.
Search for “payday loans” and you’ll find a barrage of ads and pushy Websites promoting them. Dig deeper and you’ll find an equal number of people warning you how evil they are and to stay far, far away.
Opinions on payday loans are rarely lukewarm. To the industry and their clients, payday loans represent a way to keep ahead of bill collectors with zero tolerance for late payments. These loans also do not require a credit check, so they’re available to millions of Americans who don’t have a credit history for one reason or another.
Others — including most personal finance bloggers and probably many of you — look at the high costs and aggressive marketing associated with payday loans and cry foul, fearing that the customers who use them are exploited and end up trapped in a cycle of debt and never-ending fees. You would never be so foolish as to use such a product.
Where does the truth lie? I reviewed recent research and spoke with an executive in the industry. I’m not defending certain bad actors in the industry nor recommending you go out and get one of these loans, but here’s a perspective on payday loans that’s rarely discussed objectively.
Survey: Payday Loan Customers Know What They’re Doing
Insofar as loan service clients are concerned, they know exactly what they’re doing. So says a new Harris Poll, commissioned by the Community Financial Services Association of America, that for the first time examines the motivations and rationale of those who use payday loans.