Borrowing Myths Versus Reality
With the explosion in growth of unsecured lending industry, many so-called watchdogs and consumer advocates have leaped into the fray to charge payday lenders with any number of heinous abuses of hypothetical underprivileged borrowers. Called everything from unscrupulous lenders to loan sharks, most detractors have played on stereotypes and consumer fears. While they have to distort the facts and the figures to portray lenders negatively, they rarely focus on the great benefits offered. These elitist do-gooders seem more interested in painting themselves as noble benefactors than in doing a service to those whom they have appointed themselves to protect.
People in need of a bridge loan for a couple of weeks aren't children in need of a nanny. They are responsible adults who know what they need and know the costs associated with the loans they need. They are not exploited, uneducated half-wits being taken advantage of. And the facts and figures bear that out. So, it is with an eye to the truth about lending, that the following three major myths are explored and exploded:
Myth #1: These services come with "criminally high" interest rates
One detractor of unsecured borrowing, an ambulance chaser looking to cash in on a class-action suit has termed the fees associated with cash advances "criminally high" interest. There's one primary problem with that charge: these services are legal in nearly all fifty states! Moreover, they are not interest-bearing notes, rather they come with simple fees for the term of the loan. The average fee per $100 is just fifteen dollars. Critics like to imagine large balances that go unpaid for a whole year accruing those kinds of fees as if they were traditional loans or credit card balances. They imagine them going unpaid week after week after week. Truth be told, most states don't allow a year of rollovers. Most states limit them and members of the Community Financial Services Association of America (CFSA), the group that represents the interests of unsecured lending institutions, allow no more than four extensions. After that, the loan must be repaid. However, if providers did allow rollovers, pay period after pay period, what would the resulting APR be on a $15 service fee?
Three hundred ninety-one percent interest. Does that figure seem exorbitant? It's about one quarter what banks charge for insufficient funds on an overdraft. It's about one third what utilities charge in late fees and reconnection fees were they rolled over in some consumer advocate's fevered imagination. And it's less thanhalf what credit card companies would be allowed to charge for late fees accrued over a year's time. Compared to the costs that a payday loan can prevent, everyone else seems to be the ones taking advantage of consumers!
Myth #2: These services are a trap for those in debt
"Borrowing money plunges consumers into a never-ending cycle of debt!" Well, it might sell newspapers or get people to tune it, but it just isn't true.
In fact, this imagined cycle is legally impossible. Why? Because the balance(including from www.personalcashadvance.com) is due when a borrower gets paid a couple weeks after the money was lent out! Some states don't even allow balances to rollover, but in those that do, it is limited, as already stated above. The reality is that CFSA members will not let a loan rollover for longer than 8 weeks. And most states limit even those providers who are not members in good standing with the CFSA. So much for a cycle!
Myth #3: Companies take advantage of the disadvantaged
Short-term lenders are the modern-day company store that unscrupulously and heartlessly exploits the poor. It's a charge common to those who want to see America's middle-class and lower-middle-class families as victims who need a savior. And who will save them? Themselves, no the elitist, self-appointed advocates of the imagined victims. And news outlets around the country have been more than happy to help them perpetuate this perception. What difference do a few clear, contradictory facts have to do with it! The following comes from an objective study done by The Credit Research Center, McDonough School of Business at Georgetown University:
- Poor? The majority of applicants make $25,000 to $50,000 each year!
- Old? 68% are younger than 45 years old. While 20% of the U.S. is over 65, just 4% of borrowers are!
- Uneducated? 94% of applicants are high-school grads, and 56% have attended college or are degreed!
- Underprivileged? 42% are homeowners!
- Single mothers? Most borrowers are married couples!
- Unemployed? 100% of applicants are gainfully employed and have checking accounts.
How do you like those apples? (Maybe Adam Savage and Jamie Hyneman could could take a lesson or two on myth-busting from our website!)