payday loans and why they continue to thrive

Despite the large number of companies that offer payday loans, there is very little competition in offering these financial products. Every store in a given neighborhood is charging the same interest rates for their cash advance loans as every other store. The growth of the payday loan industry cannot be overstated; shops that offer cash advance loans were fairly scarce as recently as 1999, they now number more than 20,000. In some neighborhoods, there are several payday loan stores on the same city block. The rapid growth of stores that offer quick cash loans or cash advance loans has surprised lawmakers and consumer advocacy groups, who worry, with good reason, about the fact that consumers are lining up to borrow money at interest rates of as much as 1000% annually.

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The rates of interest charged for such loans are not cheap. If a cash advance borrower cannot repay the loan after two weeks, the loan can usually be rolled over for an extra two weeks, if the debtor pays the fee again. The limited term of quick cash loans often makes it difficult for consumers to pay money back, and a lot of people end up paying the fees over and over. Some borrowers end up taking out a second loan from another store so that they might pay back the first one. Despite the steep interest and fees, the companies are successful and these companies offer millions of dollars in cash advances each and every year. In exchange for borrowing a sum that ranges from $100 to $500 for two weeks, a borrower has to repay the loan along with a fee that ranges from $10-30 per $100 borrowed.

If the loans are so pricey, why are the businesses so busy?

Seeking out bank financing would save customers a great deal of cash, but bank loans and other, more formal, types of financing require some things that many would-be borrowers do not have. The allure of payday loans can be attributed to the usual requirements of the shops that offer them. The success of the cash advance industry can be described in one word - simplicity.

Traditional requirements to obtain a payday loan are:

• The consumer must be a Citizen of the United States.
• The person must be at least 18 years of age.
• The borrower must have a current job that they have held for longer than 90 days
• The borrower must have no other current advances from that particular place of business (in some states, from any other store.)
• The consumer must have a personal checking account.

If you meet the requirements above, they will almost certainly lend money to you, which is something that no bank or a credit union will do with as little financial information as the minimum requirements that most quick cash stores mandate. There is no credit inquiry, and these companies have no interest in seeing a FICO, or credit score. It should be no surprise that these lenders are successful; they will accept the patronage of just about anyone. These businesses don't care if you have paid your charge card bill late two times in the previous six months. These businesses don't care about other advances you have, or if you had a personal bankruptcy.

That convenience that draws customers to cash advance stores comes with a price, as these financial products have an average interest rate of 391% per year. The success of these stores indicates that convenience and ease of use is an important consideration when it comes to borrowing money.