Reputable Payday Loans

Do reputable payday loans exist or are they all an inherently bad financial product? Whether justified or not, payday loans get a bad wrap because they are seen by some as a financial product that preys upon non-financially savvy, low-income Americans.

If you are a consumer looking for a reputable payday loan, remember to treat this loan like any other debt: only use it as a last resort (i.e. look for other sources of easy money), know the terms you are getting into, and pay it off as soon as possible. Skip to the bottom for information on credit unions providing payday loan services at better rates.

The guffaws are plenty when we learn that payday loans can cost consumers as much as 400% in annualized interest. A typical loan of $300 might cost a consumer around $50 over a two week period. But the consumer needed the cash, and they likely chose this place because they couldn’t get it elsewhere. Wouldn’t these businesses go out of business if they weren’t needed or there was a better alternative?

Although there are many different sources of easy money, many aren’t available to low-income consumers. Some argue that the loans actually serve the poor efficiently and without the loans, there would not be as many check cashing businesses to serve the consumers who can’t get a checking account.

Take a second to watch this piece put together by the guys at Reason.TV. As a guy who leans Libertarian and tends not to like consumer financial hand-holding, I like their spin on the issue. I particularly like the part where Joe asks the author about his prior credit card use, highlighting the irony of his opposition to the payday loan industry. I found it interesting that studies have shown that payday loan companies only average a 10% return on their customers after you take into account default rates. Even though the video is a bit slanted, I think they make a decent argument for the existence of the payday loan industry.

After I watched this video, I looked into alternatives to traditional payday loans, and I found that in some states, employers are partnering with local credit unions to provide payday loans at better rates for the consumer. To find these loans I suggest asking your employer or doing a search online for “credit unions payday loans”.

What is your take? Are States and the Federal Government helping or hurting consumers by running these establishments out of business?

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Payday loans get a lot of criticism mainly because people always unfairly compare them to regular loans like you would get at a bank. Those are set up with monthly payments installments that you pay back over time. A payday loan is exactly as it sounds "Hey loan me a few dollars until my next pay". Which means in about 7 to 14 days later the full amount that you borrowed, plus the fee, must be paid back. So, of course, if you compare the two then the payday loan interest rate will appear extremely high. Many people say that comparing cash advance payday loans to regular traditional installment loans is apple and oranges. But I feel since they are actually both loans it more like comparing oranges to a grapefruit. But that was my little rant I needed to get off my chest. The truth is there is the potential for a lot of people to get in trouble with payday loans because they misuse them, keep renewing them, and become dependent on them. However when cash advances are use only as they are intended, like for emergencies (the car breaks down, the ac goes out, etc) they are an absolute life saver. I've needed to use them in the past. My car actually did break down. I didn't have any other way to get to work. I could not afford to miss any more days. So I feel the payday loan very much help me keep my job. But I paid it off... And I didn't go back and get another one next week.

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Philip Taylor

i don't think you did read the post. you accused me of loving payday loans and singing their praises. someone who would do that hasn't read the post.

facts noted in the post and video above (you must have missed):

- payday loans are almost always a bad idea for consumers
- payday lenders take significant risk with their clients, and thus need to charge high fees. studies show they average a 10% return.
- people who take out these loans are aware of what they are doing, as regulation requires lenders to spell this out.
- more reputable payday loans can be found at credit unions

I understand that payday lenders have a bad wrap. I understand how someone might be completely against them. I wouldn't want to run one, nor do I promote them as a good solution to my readers.

I also hate cigarettes. I don't like using the federal government to keep people from using them though. Education and warnings are as far as I think we need to go.

Please keep in mind this post really was aimed at a higher level discussion about government over-reach and a the industry as a whole. Sorry you didn't want to participate in a normal discussion.

Matt

Wow. Didn't mean to touch a nerve. But, come on - a headline like: "In Search Of Reputable Payday Loans..."? That's an oxymoron if ever there was one. To begin with, yes - I read your post. I don't comment on anything until I read it in it's entirety. In your defense - more than you've given me, by the way - your other post (which I also read in it's entirety, so spare me the accusations) "...sources of easy money" is exactly the type of post that folks needing payday lenders should read. Meanwhile, the provocative headline of this particular post fairly begs for a provocative response. Payday lenders are a sore spot with me and many others - witness the legislative attempts at reining in the predatory practices that these vultures engage in. This includes targeting those in military service,
seniors on fixed incomes, and the handicapped who receive Social Security benefits - because those folks have "guaranteed income" and are easy marks. You're defending these types of businesses, and I'm going to call you out on it.

Why are you bringing in the mortgage example? Is that even relevant?
Mortgage interest = 4-6% (roughly) per year.
Payday lender interest = um, well, it's a bit higher.

For what it's worth, I hail from Cleveland originally. You really don't want to change this conversation from payday lenders to mortgage lenders on a Cleveland native - both groups have done significant damage to Northeast Ohio. I completely disagree that "running these businesses out of town" isn't beneficial to those who are targeted by these companies. To reiterate the analogy: just because crack dealers have a product that is also "in demand" doesn't justify keeping that type of business around.

Okay, first let me say that it's annoying to discuss this with you when you accuse me of loving payday loans and singing their praises. That's just a distraction to take this discussion down the wrong path. Or, you didn't actually read my post above. Everyone who reads the article above and knows my site understands how I feel about payday loans (did you even read my note above?). Payday loans are a bad option for any consumer. I'm disappointed you chose to go there.

I completely disagree that people are ignorant about what a payday loan is. In fact, I think it's an insult to low-income earners to say it. Do you really think those people are walking in there thinking they are the next Warren Buffett with the smartest idea of taking out a 400% loan? No. They know it's bad. But it's their choice. Likely their perceived only choice at the time. These people can't get credit or a bank account. They don't have friends or family with money. The don't even have anything to sell. But they do have a job. That's their asset that they trade for value. What are you trading for value. Do you have a mortgage or did you pay for your house in cash? Odds are you are leveraging your job to live in your house. How much in interest are you going to pay over 30 years? $100K? Should the government step in and kill off mortgage lenders because you are paying a ridiculous $100K in extra fees to live in your home? Talk about a headline!

People who pay bank fees at BOA are making a similar choice. One is simply more costly because of the risk involved with the client. It's just business. If you don't like it, move on to a better product or solution. I do. When I need cash I dip into my emergency fund. When I need checking I go to ING DIRECT or PerkStreet, where I won't be charged a fee. Easy. But I have that choice. These low-income consumers don't.

Running these businesses out of town does nothing to improve these people lives. In reference to your first comment, they'll have to resort to selling crack from now on. Are you happy now?

Well, yes - I think a number of folks who are considered "poverty stricken" lack financial sophistication. The sheer quantity of these types of lenders - along with check cashing stores, rent-a-centers, and the like - is always higher in lower-income neighborhoods. Just because these folks "keep the industry alive" doesn't justify singing the praises of this very - I'll say it again - "leech" type industry. Unfortunately, the major banks haven't served the interests of their customers, lower-income or otherwise, for several years, Philip. Have you been paying attention to the news in the last few years? We not only have banks such as BofA that have been raping (for lack of a better word) their customers with things like overdraft fees, we all bailed them out when their incompetence and greed got them into trouble. So I'm not expecting the banking industry to step forward and offer ethical yet profitable products to the public regardless of the public's economic status. Excuse my sarcasm - but the banking industry has engaged in pretty reprehensible behavior for quite some time. Many of your beloved payday lenders are backed by major banks.

Matt - Nice sarcasm. Don't know if it carries the conversation anywhere or solves any problems. But anyway, so are you saying the poverty-stricken are too ignorant to know this is a bad product? They are keeping the industry alive. And why aren't major banks serving these clients? You'd think they would be falling all over themselves for those supposed predatory profit margins.

I agree, payday loan centers are a boon to the poverty-stricken. Other quick sources of cash for those in dire financial straits:
* sell crack
* play the lottery ("scratch off" tickets have the best returns)
* buy liquor, then resell it to high-school kids at a profit
* build a meth lab and sell the product it produces
* become a prostitute (this has long-term potential as you can generate return business)

Look, if you're going to defend bottom-feeding leech businesses like payday lenders - let's just put all of the alternatives out there, shall we?

In Search of Reputable Payday Loans for Americans Short on Cash

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