Payday loans and why they work

The expansion of the payday loan industry cannot be overstated; shops that provide payday loans numbered in the few thousands not too long ago, they now number more than twenty thousand. In some cities, there are multiple quick cash loan stores on just one city block. Despite the large number of businesses that provide quick cash loans, there is no competition in offering these financial products. Every store in a given city is charging the same interest rates for their advances as every other store. The rapid growth of businesses that provide quick cash loans has surprised lawmakers and consumer groups, who are concerned, with good cause, about the fact that Americans are lining up to obtain cash at interest rates of up to one thousand percent per year.

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The interest rates charged for cash advance loans are very expensive. The brief term of cash advance loans frequently makes it hard for consumers to pay money back, and a lot of them end up paying the fees over and over. A few consumers end up taking out a second loan from a different store so that they might repay the first one. As the price for borrowing a sum that ranges from one hundred dollars to five hundred dollars for fourteen days, a consumer has to pay back the loan along with a fee that ranges from $10-30 for every $100 borrowed. Despite the steep interest and fees, the businesses are successful and these lenders provide millions of dollars in payday loans each and every year. If a quick cash borrower cannot repay the money after two weeks, the loan can generally be renewed for another 14 days, if the customer pays the fee again.

If the loans are so expensive, why are the businesses so successful?

• Seeking out bank financing would save borrowers a lot of money, but bank financing and alternative, more formal, types of financing require some resources that many would-be borrowers do not possess. The achievement of the short-term lending industry can be summed up in one word - simplicity. The appeal of cash advances can be attributed to the standard requirements of the stores that provide them.
  
  Standard requirements to acquire a cash advance loan are:
  
  The client must be 18 years of age.
• The applicant must have a bank account.
• The consumer is required to be an American citizen.
• The borrower is required to have a current job that they have held for at least three months
• The consumer must have no other present advances from that store (in a few states, from any other company.)

These stores don't care if you have paid your charge card bill late three times in the last six months. There is no credit inquiry, and lenders have no interest in seeing a FICO, or credit score. It should be no surprise that these lenders are lucrative; they will accept the business of nearly anyone. If you meet the minimum requirements above, they will almost certainly lend you money, which is something that no bank will do with as little financial information as the minimum requirements that most cash advance stores need. Quick cash stores don't care about other advances you have, or if you had a recent bankruptcy.

That convenience that draws customers to payday loan 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 in borrowing money. Convenience is nice, but watch out for the prices when shopping.