Payday loans have been part of the American culture for quite awhile, but over the last 10 years they have exploded. Consumers have thousands of sources for payday lending both online and at traditional brick and mortar stores.
Payday lenders have long been under scrutiny and often criticized for the stunning costs they charge for providing loans that need to be repaid within 14 days. The costs for a payday loans are rated as a percentage of the total dollars that are borrowed from the lender. Payday loans range from 45% to 200% of the total. That's pretty expensive for a loan that is going to last less than a month.
Despite the high cost, payday lending remains very popular. The need is there because so many people are trying to keep their utilities up and running, get their cell phone turned back on, trying to avoid multiple NSF charges in their checking account or some other desperate last minute financial struggle.
Enter into this YadYap Payday Loans, which is (going to be) the first peer lending firm that specializes in payday lending. The possibilities in this venture are very appealing on both sides of the lending equation. The borrower is going to be very interested in receiving a short-term loan for much lower costs than the current format of payday loans. The terms and rates could be far more reasonable than current payday lending companies, which are charging enormous rates and very punititive penalties for not fulfilling to the exact dates of the loan. On the lender side the situation is also quite interesting. A peer payday lender could ask for a 12% return on their investment per month and still be charging much, much less than the current payday lenders. Theoretically, these loans could be extended for another (relatively equal) fee. The lenders, despite a certain degree of risk always present with payday lending, could stand to make a very good return on their investment.
YadYap is still not an active company, they are currently clearing all the legal / SEC hurdles to become a loan firm, and to facilitate loans. When they do go live, it will be the first time that payday lenders have ever faced a true competitive measure. Right now, all of the thousands of payday lenders are the same animal. Even though the rates might be different, the penalties might be lower or higher, and the length of the loan could vary, the reality is that all these lenders are the same. Overall, payday loan companies are all concerned with high fees, a very immediate demand on the return of that principal and the high charges that await if the borrower is unable to repay on time. Terms that are not what consumers need to deal with, especially in the garbage economy we find ourselves in today.
Keep an eye on the YadYap website, especially if you are active in short-term borrowing (or know someone that is) because this company could be a game changer. Paying 12%, or even 18%, would be a great improvement over the charges and set-up that has been in place for the last 20 years. And YadYap, if successful, could quickly get some competitors. And that would mean a big sea change in the world of payday lending.
