Payday loans tend to have bad reputations. When most people think of payday loans, they think of loan sharks and borrowers caught in debt hamster wheels. You might be surprised to know that payday loan companies charge reasonable interest rates and have great policies Here are the top six surprising facts about payday loans:
1. Most payday loans are small, with low fees.
The majority of payday loans are in amounts ranging from $100-500. The typical fee for a payday loan is about $15-20 for every one hundred dollars borrowed. These fees are reasonable for the amount borrowed, and are determined by law. Despite this, payday loans have a reputation for being predatory due to high APR. However payday loans are short term and as such the typical interest rate is low, especially if the loan is paid off within the agreed time period.
2. Online payday advances require no credit check.
Online payday loans typically require no credit check for borrowing. Payday loan companies do this because your paycheck is your collateral. This allows people with no or poor credit to get the money they need for emergencies or unexpected expenses.
3. Payday loan companies have small profit margins.
Because of their reputation, people think payday loan companies are rolling in money. This is not the case. The typical payday loan lender has a profit margin of only about 3.57% on average. In comparison, other types of lenders, including credit companies, have profit margins averaging about 13%.
4. Payday loans don't meet the definition of predatory.
According to a report by the Federal Reserve Bank of New York, payday loans do not meet the definition of predatory lending. Households in areas where larger payday loans are legal are not more likely to default or miss payments. In fact, these areas also have payday loans with terms that are more favorable for the borrower, including lower fees, because of increased competition.
5. Payday loans help those affected by disasters.
Payday loans are an important tool for those in need, especially for anyone affected by a natural disaster. According to a study by the University of California in Berkeley, payday loans can help prevent foreclosure in disaster affected areas and can decrease the impact of the disaster by half. The study also finds that larceny decreases in disaster affected areas that have payday loans.
6. The typical payday loan borrower is middle class.
When people think of the typical payday loan borrower, they think of poor or lower class people. According to the SEC, the median annual income for a borrower is $54,373. This median income is higher than the median income for the population of the United States.
These are six surprising facts about payday loans. These facts just might change your opinion about the payday loan industry. For more information, contact a company like USA Cash Services.Share