The payday loan is much maligned, but they would not exist if there were not a market for them. Sure, some people use them foolishly, but they serve a purpose and should therefore be allowed to be a part of the lending market. There are a number of reasons for this.
Payday Loans Are Accessible
Traditional banking is not available to everyone. Not everyone can just go to a bank and ask for a loan and have their wish granted. Not everyone can qualify for an emergency credit card. This could be because some people have bad credit or it could be because they have no credit at all.
For those people who are outside of the traditional banking system, payday loans provide a method to borrow.
Payday Loans Are Perfect For Emergencies
Traditional lending can take days, if not weeks. Payday loans, on the other hand, can be funded the next day and on the same day in many cases. If a sudden emergency occurs, such as a medical problem or a breakdown of an only car, people do not have time to wait days or weeks, they need money now.
These loans can be a safety net for those who do not have an emergency savings or an emergency credit card.
Payday Loans Are Regulated
Payday loans are regulated strictly by most states. Limitations have been placed on the loan size and, in many cases, their fees. Lenders can often face stiff penalties if they violate regulations.
In addition to state regulations, many payday lenders choose to join organizations that further regulate them. They adapt polices that are designed to keep the industry in good standing and improve the image of payday lenders.
Proper Use Of Payday Loans
The real issue at hands is not whether payday loans should be banned, but how to use them responsibly. Like any loan product, if it is used irresponsibly, there will be trouble. Here is what needs to be done.
Educate Consumers
Consumers need to be educated on the proper use of all loans, not just payday loans. They should know common loan terms such as interest rates, APR and be aware of the different type of loan fees. Budgeting and financial planning should also be topics of education either in the schools from government agencies or even both.
Alternative Solutions
There needs to be an alternative to payday lending so that payday loans can be used strictly when they are appropriate.This could include anything from community based lending programs to lending from non profits to microfinance institutions. These solutions may allow consumers that do not have access to traditional lending to borrow at reasonable rates.
Summing It Up
So, are payday loans a useful part of the lending or do they do more damage than good? That is something fro you to decide yourself, but they are not likely to disappear from the system anytime soon. They are far too popular and the payday lending organizations are far too powerful. It is probably best for you to decide yourself whether you make them a part of your financial picture or not.
