…what would happen to the average person who suddenly finds himself facing a very tight financial situation?  Those who are vehemently opposed to payday loans would probably retort “They would be able to find cash through some other means or from other sources.”  Though this may be true, those other means or sources may not always be feasible.  Let us take a look at some of them:

-Parents:  our parents will always be willing to give us a helping hand when we need it, I am sure.  Yet doesn’t make it you uncomfortable to keep on asking your parents for money when you are over 21?  More so, what if your parents do not really have the money to lend you anyway?

-Other family members:  as with our parents, I am sure that other members of our family will also be willing to help us out in times of need.  However, if you feel uncomfortable asking your parents for money, how much more when it comes to other family members?  In addition to this, they may have families of their own.  This means that they also have their own responsibilities to deal with.

-Friends and colleagues:  kindhearted people will almost always lend you money but are you willing to risk your relationships because of finances?  Not everyone is comfortable when other people approach them for help financially.  And again, they themselves may not have the extra money to lend you.

-Your local bank: do you have what it takes to be approved for a conventional loan?  Banks and other traditional financial institutions are quite strict when it comes to lending money.  They will ask for a lot of documentation and requirements before they lend you money.  More so, it takes a long time to avail of a loan through the bank.

-Your credit card: don’t you have enough credit card debt already?  And what if you cannot use your credit for this particular need that you are facing?  Are you willing to pay the high cash advance fees on top of the regular credit card fees?

So back to my original question.  What would happen if payday loan providers are run out of business?  The most probable scenario that I am seeing is that the average person will be tough out of luck.  His options would even be more severely limited.

What we need to realise is that payday loans exist for a purpose.  It is true that because of their accessibility and convenience, they tend to serve as temptations for some people.  These are the people who do not think ahead and merely borrow what they want, when they want.  These are the people who find themselves owing too much before they realise it.  These are the people who would probably find themselves in the same debt situation even if payday loans did not exist – they would fall into the debt trap through some other means.

But what about those people who are responsible borrowers?  People who know what they need and borrow only what they an afford to repay?  These are the people who can make use payday loans in the proper way.  These are the people who need payday loans to see them through tough times.

I ran across a very interesting article on payday loans today.  Truth be told, with all the reading that I do everyday, I really rarely come across articles on payday loans in the UK.  Articles, editorials, and write ups about payday loans and all the issues surrounding them are rife in the US – there is no doubt about that.  It seems that in the UK, though, the hype is not all that present.  As such, I was both surprised and pleased to see something about payday loans.  I’d like to share it with you:

A phenomenon which started in the United States so called payday loans are fast becoming popular here in the UK as a way of getting cash fast. Payday loans are very short term loans which can be approved and paid within a matter of hours.

The loans are designed to be leant over a period of one month and repaid at the end of the month when the customer receives their monthly paycheque. Small short term loans of no more than £750, they are advertised as the potential answer to temporary money worries, offering a fast cash injection to tide you over until payday.

The loans have been criticised for their shockingly high rates and the ease with which you can obtain one. The pre-requisites to qualify for a payday loan are simply to be over eighteen and in full time employment. No credit checks take place and there is no discrimination on the basis of your status or income.

What alarms financial experts as well as the ease in obtaining one of these loans is the high rates. Typically for each £100 borrowed, you pay back £125. That means that on a maximum loan of £750, you would pay back £937.50. The annual percentage rate (APR) for many of these companies is a massive 1,355.

However, APR is perhaps a misleading measure for these loans as they are not intended to be paid back over a period as long as a year. The charges are high when paying it back on time, but if you do take as long as a year to repay the loan, the costs can be devastating. An additional £25 charge is added to each £100 borrowed in addition to the £25 standard interest for each month that your payment is late. A £100 loan can escalate to £400 in 6 months and almost £1,400 over a year.

Many of these companies target young people advertising on social networking sites popular with young people, such as Facebook. In defence of the loans, a spokesman for the company behind Payday UK says that “bouncing cheques or incurring unauthorised overdraft fees, can work out considerably more expensive to the customer than the equivalent charges on a payday loan”, suggesting that payday loans can be the cheaper option for those struggling with the bills.

As you can see, there are two sides to the story – same case in the US.  I still think that there are both good and bad points to payday loans.  The important thing is to perceive everything in context and not compare things that are quite different by nature.  More so, a large part of the responsibility, again, lies in the borrower and not solely on payday loans.

It’s unfortunate that I don’t get to see a lot of news items on how payday loans are doing consumers a lot of good.  More often than not, what we read in the newspapers are articles bashing payday loans and the payday loan industry as a whole.  That is why when I see something that support payday loans, I take a deep look at it and see where its coming from.  After all, we could all learn something from it.

I ran across this article from a Kansas online newspaper – it is actually a letter to the editor.  I know it is not from this side of the ocean, but anything that details the benefits of a payday loan is worth taking a look at, in my opinion.

Here are some excerpts of that letter.

By ignoring industry data and independent research, the Kansan’s April 9 editorial about payday lending was typically one-sided and misled readers.Responsible payday lenders have helped millions of Kansas families make ends meet when facing urgent, unexpected expenses such as auto repairs, medical expenses or unusually exorbitant bills.

Current Kansas law already includes some of the strongest consumer protections in the country. Limits on loan amounts and fees and a ban on loan renewals prevent customers from abusing the product and from experiencing the kinds of annualized percentage rates referenced by industry critics.

In fact, the vast majority of payday loan customers appreciate access to short-term credit and use the product responsibly, to cover unexpected, urgent expenses or to avoid other, more-onerous fees such as those associated with bounced checks, overdraft “protection” and late bill payments. More than 90 percent use the product responsibly and pay their loans off according to loan terms.

For the small minority who — for whatever reasons — find themselves unable to meet their loan obligations, members of the national association of payday lenders — the Community Financial Services Association — offer extended payment plans that provide any customer — at any time, for no charge — more time to pay off their loan. That’s free credit!

Banning the industry would deny Kansas consumers the right to make their own choices, limit their credit options and force many to risky and more costly options such as unregulated off-shore Internet lenders and bouncing checks.

Let’s give reasonable, hard-working Kansans access to a variety of regulated credit options and trust them to make financial decisions based on what’s best for them and their families.

This letter was written by Tom Linafelt, presumably a person who has benefited from payday loans at one point in his life.  I think that anyone who has had the chance to take out a payday loan and was able to deal with an urgent financial matter as a result would feel the same way.

I think the operative word here is RESPONSIBLE.  This would be applicable to both the borrower and the lender.  On the one hand, the borrower must responsible enough to borrow only what he needs and can afford to repay.  On the other hand, the payday loan provider must also be responsible and not overcharge its customers as well as offer reasonable terms for repayment.

Who does not want to be taken cared of?  When was the last time you were sick?  What did you do?  How did you react?  Did you take care of yourself or did someone tend to you?  No matter how old or how independent you are, there are times when you simply need and want someone to take care of you.  I may be making generalisations here but I have observed this to be true in many cases.

When it comes to finances, it still applies, I believe.  No matter how financially independent a person may be, there would certainly be times in his life that he would run into some financial glitch.  When this happens, people act and react differently.  Some may take matters into their own hands while others run to other people for help.  These two actions do not have to be mutually exclusive, however.

One solution for immediate cash needs is to take out a payday loan.  I consider this action as both taking matters into your own hands – showing your independence and ability to deal with urgent situations – and as asking someone else to help you out.  I said the former because the decision to take out a payday loan comes only from the person.  In a sense, he is still acting on his own and making his own decisions.  The latter statement applies as well since technically, the payday loan provider offers the assistance that a person needs.

So how do you go about taking out a payday loan?    It is very easy!  You only need to decide on which payday loan provider to deal with.  This could be a daunting task for the uninitiated simply due to the immense number of payday loan providers that operate in the UK.  To make things easier for the first timer, I suggest looking at blogs (like this one) and forums and other sites that list down payday loan providers and provide information on them.  This will narrow down your search easily.

Once you have found the payday loan provider that suits your needs and preferences best, then it is time to fill out the application form – online – and send it back.  This takes a few minutes to complete and send.  Once the application is in, all you have to do is wait for the approval – and most everyone gets approved!  This is because they only ask that you have a regular source of income and a current bank account.  You do not have to worry about your credit rating as payday loan providers do not care a whit about this point.

Much like your mother, your friend, or your partner takes care of everything when you are physically incapacitated, payday loan providers make things easy for you when you are financially harried.  The next time that you find yourself facing an urgent financial need and you are quite unsure as to how to deal with it, I suggest that you shop around for a payday loan.  It just might be what you need!

How much would you pay for convenience?  Before you answer that question, think about other things in your life. Where do you do your shopping?  Do you go to the nearest market even if it may mean that you will be paying a little bit more?  How about when it comes to communications?  Do you opt for the better plan for your mobile phone so that it will be more convenient for you even it might mean paying a little bit more?  How about shopping online?  Maybe you might have to pay for the shipping but it means that you won’t have to queue up at the malls to purchase whatever it is that you need.

The fact is that we are all too willing to pay for convenience.  In a sense, it does not really mean that we are spending more than we should.  How so?  Simply because if we were to take the “cheaper” route, it would mean that we would spend more time.  If you consider time money, then in a sense, you are saving something as well.

When it comes to loans and other financial matters, there are a few things – maybe even nothing – that could compare to the convenience that payday loans offer.  You can take out a loan from a conventional lender but that would entail you having to call off work for at least half a day so that you can physically go to the lender’s offices.  In there, you would have to wait in line, talk to the loans officer for a while, fill out tons of paperwork, and so on.  If you decide to take out a payday loan, however, all you need is your computer and an Internet connection – which you have at work, I presume.  You can fill out the online application form during your break as it takes only a few minutes.  You might have to fax it a few documents, again, which will take only a few minutes.  Compare the time spent on both types of loans and you can see the convenience that payday loans offer.

More so, when it comes to getting the money from your loan, you are also offered more convenience.  You do not need to get the cheque from the loan provider.  Payday loan providers will automatically deposit your cash into the bank account that you have indicated.  All you need to do is withdraw it using your cash card or maybe even online.

As you can see, when it comes to crunch time, payday loans offer more flexibility and convenience.  You do not have to spend unnecessary time dilly dallying because of long processes normally associated with the financial institutions.  In addition to this, when you really need the money, you will be able to get it from a payday loan – in time to meet your needs.

Think about it, payday loans may cost a bit more but in the end, if your need is all about timing and convenience, they offer the most feasible solution.  So don’t be so quick to dismiss payday loans!