Re: I DONT GET IT
Because you are already in the dumps and need some cash, like, right now.
"What Payday Lending Is"
Payday lending is a relatively new development in consumer finance. Payday lenders market their service as a credit instrument to bridge the borrower until the next paycheck. Popular examples are companies "Check into Cash" and "Check ‘n Go." A typical payday loan works like this: the borrower writes a post-dated check to the payday lending company. In return, the borrower receives cash, minus lending fees. For a $250 loan, the lending fee might be $50 and the loan term 30 days. That works out to a 240% APR —a hefty rate!
...The high APR in part reflects the relative size of transaction costs to the small loan amount (<$300). The lending company must run credit checks, process paperwork, etc., regardless of whether the loan is $100,000 or $100. In this way, a reasonable $50 transaction fee translates into an APR that appears unreasonable. Even if transaction fees were removed from the picture, one would still expect large APRs for payday loans because of the relative credit risk of payday borrowers.
...Now consider the situation from the borrower’s perspective. Most who turn to payday lending have poor or limited credit history. Although their situations may be dire, they naturally find few people stepping up to extend them a loan. Credit is a measure of the reliability of a borrower to live up to a loan contract. As economist Henry Hazlitt pointed out, credit is not "something a banker gives to a man. Credit, on the contrary is something a man already has." For a borrower with bad credit, payday lenders offer an invaluable service few banks will offer. Not only do they provide liquidity when it is most needed, payday lenders provide the borrower an opportunity to establish a positive credit history. In short, payday lenders provide a means for the unbanked to join the financial mainstream.