Why Payday Lenders Are Nothing to Be Scared Of

During tough economic times, people rely on assistance in a number of ways. Counting on help from family members is a staple of navigating difficult periods, as parents, siblings, and others can provide help with everything from room and board to extra cash. Friends are another lifeline for those struggling, both in terms of financial/material assistance and emotional support.

Yet not everybody finds themselves in situations where others are able to assist with various financial needs. In these cases, individuals and families alike have to find help through more formal sources. Whenever a bit of extra money is needed, borrowing from reputable lenders is often the best course of action.

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For those not able to secure lines of credit or loans from traditional lenders, payday lenders offer a flexible array of services. With tens of millions of loans given nationally every year, the use of such loans is both common and safe. Let’s examine why you shouldn’t be hesitant to use short-term lenders if you’re currently struggling to make ends meet.

Millions Use Short-term Loans Every Year

Perhaps one of the biggest reasons why borrowers shouldn’t fear the nothing of short-term lenders is the sheer number of people who use these services safely each year. The volume of both borrowers and amount borrowed is substantial – larger than many key industries – and the vast majority are paid back with no issue.

Exactly who uses short term loans direct? Take a look at the following data:

More than 10 million individuals borrow money using short-term loans each year. In 2010, Pew Research found that 12 million individual borrowers used these loans that year. Given both growth in short-term lending and the adult population, this figure is likely even larger today.

More than 100 million individual payday loans are made each year. Over the same year, the study found that the average borrower used eight loans, with an average loan amount of approximately $375. This means that the average borrower utilized roughly $3,000 worth of short-term loans in a given year.

Nearly 20 million payday loans per year are used to cover unexpected expenses. Sometimes, difficulty paying recurring bills on time can occur due to job loss, moving or other factors. However, roughly 20 million small loans were secured in 2010 just to cover truly unexpected expenses such as medical emergencies or car repairs.

Payday Lenders Serve Underserved Communities

Some people are skeptical of payday lenders due to their broader business model. However, these critics overlook the immense role that these companies play in guaranteed access to loans in many communities.

The Federal Reserve notes that the number of banks in the United States has dropped by roughly half over the past 20 years, with small-scale banks being the biggest victim:

“The number of banks in the United States fell by almost half over the past 20 years – from about 10,700 in 1997 to about 5,600 in 2017. About 97 percent of the decrease was accounted for by community banks.”

These community banks historically have served poorer and more isolated communities where larger financial institutions simply deem the median borrower too risky. As the number of large banks continues to increase at the same time, many communities are finding themselves without access to small-scale lending options. Stricter and more nationalized lending policies by these banks can mean that many have no traditional lending options available in their communities.

This is where the role of payday lenders for bad credit and no credit borrowers becomes so valuable. In communities without traditional lending opportunities, quick loans for bad credit provide a valuable financial tool. By being able to borrow small sums of money over short periods of time, these community members can make ends meets without having to face constant rejection from established banks and lenders.

Pew also found that an overwhelming majority of those who use payday lending services would be forced to cut back on food and medical expenses or delay paying bills without the service being available.

As such, payday lenders provide valuable assistance to communities that would otherwise be neglected or forced to swallow more painful financial decisions.

Little Loans Offer Small, Short-Term Assistance

For those who are both working and struggling with financial matters, it often only takes a bit of short-term help to alleviate the problem. Millions of families find themselves persistently paying bills late or avoiding needed expenses simply because they cannot secure an extra few hundred dollars in one lump sum. This is another reason why people should not be afraid of payday lenders: they provide limited, short-term assistance where it counts.

The Consumer Financial Protection Bureau found in 2013 that the average length of time it takes for a consumer to repay a payday loan is around 18 days. Given that the average length of time in repaying an individual loan is only a couple of weeks, the idea that borrowers are being trapped under the weight of short-term loans is entirely inaccurate.

By being able to borrow a few hundred dollars that will be paid back in a few weeks, millions have the ability to take care of needed and/or unexpected expenses rather than delaying them. In some situations, these loans can even save borrowers money:

Late fees associated with other recurring bills can quickly add up. For consumers who are consistently one or two weeks behind on paying their regular bills, the amount in late fees can quickly surpass the amount of interest on a single short-term loan. By borrowing a small amount and repaying it quickly, borrowers can square up their bill payment schedules and break the cycle of perpetual late fees.

Overdraft fees are a major concern. In 2018, traditional banks earned far more than the amount payday lenders earned in interest. Banks are currently making more than $30 billion annually in overdraft fees, with the average overdraft fee being around $35 per instance. Just one overdraft charge can completely surpass the amount of interest on a small loan, meaning that it is better to borrow and repay in the short-term than it is to risk over-drafting your bank account.

With these concerns in mind, it is easy to see why short-term lenders are a responsible option for many who are struggling financially. By offering small and short-term loan repayment plans, some consumers can even save money by borrowing from them (as opposed to incurring overdraft fees and late fees).

There Are Payday Lenders for Bad Credit and No Credit

Not everybody can enjoy the benefits of traditional borrowing. As we’ve already discussed, many communities are underserved or completely devoid of banks and credit unions. For these individuals, borrowing remains necessary even if traditional lenders aren’t present.

However, even in situations where traditional lenders do exist, some people simply can’t secure loans through them. Not only are banks increasingly moving away from small-scale lending, but large numbers of people lack the prerequisite credit scores and histories to borrow from traditional lenders.

Roughly one in three Americans (30 percent) has either no credit or poor credit, making it nearly impossible for them to borrow through standard channels. Payday lenders for bad credit and no credit consumers are quite abundant, making it possible for individuals to take action when financial difficulty strikes.

What is needed to borrow from a short-term lender when you have little to no credit? A few key elements are all it takes:

Government ID. In order to verify you are who you say you are, lenders must receive one or more forms of proper ID during the application process. Whether you apply online or in-person, providing these documents is an essential part of the application process. Forms of identification include US passports, driver’s licenses, college photo IDs and military IDs. Some lenders may only require one form of ID, while others may require two.

In order to verify you are who you say you are, lenders must receive one or more forms of proper ID during the application process. Whether you apply online or in-person, providing these documents is an essential part of the application process. Forms of identification include US passports, driver’s licenses, college photo IDs and military IDs. Some lenders may only require one form of ID, while others may require two. Bank account. Short-term loan lenders provide quick access to money, but it’s not handed over in the form of a wad of 20-dollar bills. Electronic transmission to a checking account (usually by the following business day) is the norm, and as such, possession of a checking account is required. While the lack of community banks in many areas may make this a bit of a hurdle for some, opening a bank account can be done online through many branches these days.

Short-term loan lenders provide quick access to money, but it’s not handed over in the form of a wad of 20-dollar bills. Electronic transmission to a checking account (usually by the following business day) is the norm, and as such, possession of a checking account is required. While the lack of community banks in many areas may make this a bit of a hurdle for some, opening a bank account can be done online through many branches these days. Proof of employment and/or income. To secure a loan, you must first have a reliable and consistent payday. As such, lenders insist on borrowers providing proof of income and/or employment during the application process. This may include pay-stubs or records of alternative sources of income (such as government assistance). Most lenders won’t provide loans unless you can show you’ve been employed or earning income for one to two months, so bringing (or digitally transmitting) copies of your most recent bank statements is a good idea as well.

The Verdict on Payday Lenders

Short-term loans are a commonly used tool to help those who struggle to navigate difficult financial circumstances. As long as you understand the terms and have the means to repay the loan, there are many situations in which using such loans is perfectly acceptable and responsible. Whether it be to avoid additional late fees and penalties, cover medical expenses or make needed car repairs, these lenders provide a valuable service to communities often overlooked by banks and credit unions.