FAXLESS PAYDAY LOANS

YADYAP PEER LENDING FOR PAYDAY LOANS

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.

Peer Lending Instead of Another Payday Loan

If you're reading this article, then you have probably suffered through a payday loan somewhere in life. This is a bit of derogatory beginning, especially for someone who has defended payday loan companies.  Here is the situation with payday loan firms - they have a role in our society.  There will always be people who just had their cell phone turned off abruptly by their carrier, or their power shut off by the electric company.  Everyday people are always going to have some degree of everyday emergencies.  It is as sure as the sun coming up tomorrow.  And that's why I have said that payday loan companies should not be villified, because they do provide a service to people.  Even if that service tends to be a little expensive.

And that brings me to the topic of the day, which is peer lending.  I want to merge the concept of payday lending with the growth in peer lending.  Someday the world of payday loans might be evolved into the peer to peer lending format, which would be fantastic.  Imagine that instead of a traditional  payday loan a customer was able to get a short-term loan from a peer lending company.

This is how it could work.  Right now and in the past, if you needed a payday loan you have two main options.  Either go online to find one of the dozens (if not hundreds) of payday lenders available or go to the nearest strip mall with a bricks and mortar payday lending store.

The catch is that whether you went to the physical store or to a payday website, you are going to have to pay substantial costs.  As in up to 25% - 45% of the loan costs in fees.  This is a remarkable situation, especially when compared to the other existing debt formats in our country.  Take as examples a mortgage, personal (signature) loan or a home equity line of credit.  The APR on all of those products will be much, much less in interest and fee payments than any payday loan out there.

It's almost as if the payday lenders have all conspired and colluded to all have a very high fee schedule.

Another problem is the turn time of the loan.  Payday loans are almost always 14 days, once in awhile you can get a 28 day or 30 day loan.  But either way, the turn time of the loan is dramatic.  You have to repay the loan, with the high degree of interest, almost immediately after you have the money.

So let's summarize.  If you have good or decent credit, you can get a personal loan for three or four years, at a reasonable interest rate, let's say under 12%.  You will have years to pay the money back and the cost of borrowing the money wasn't that terrible.  Now compare that with a payday loan.  You will have to pay at least 25% of the loan cost and you will have to repay the money within 14 days or you will be subject to another round of extremely high costs, as in another 25% of the original loan.

There has to be a middle ground.

I believe there is and it will be peer to peer lending.  The future of peer lending will be able to provide a match of one person wanting to get a nice return on their money.  Say the individual lender wants to make a six percent return on their money in one month.  And another person needs a short-term loan that isn't going to break their back for 14 days.  A peer loan, or should I say a peer payday loan, would be able to accomplish both goals.

The lender could charge the borrower six percent simple interest for the right to borrow the money for 14 days.  The borrower would definitely gravitate to this lender, because the interest rate and overall costs are so far superior to that of the payday lending firms.

This would work for both sides.  In fact, this could work amazingly well.  To be honest, I'm not sure why there isn't a company doing this already.

The peer payday lender could set-up a simple six percent interest charge to the customer and invite in lenders who would like to make six percent interest on their money every month.  This company could even have a set aside fee of say one percent interest charge for fees and another one percent for loans that defaulted.

So the total cost to borrow money for a potential customer seeking a payday loan would be eight percent a month.  The firm could allow a few rollovers as well (maybe limit at five) for eight percent each month after that.  There could also be a gradual increase to the repayment schedule, so that it doesn't "hurt" as much to repay the original loan amount.

Peer lending is currently available mainly with Lending Club.  Prosper Marketplace and Loanio are two firms that were providing peer loans but have currently "gone dark" while they clear up some issues with the government.  There was another firm called Zopa that peer loans but it has since left the U.S. market.

As of this writing there is no firm providing a substitute service for payday loans.  But with the huge fees and high costs, it only seems a matter of time before some smart peer lender jumps into this market with both feet.  Watch to see if this happens.  There is a lot of business and a lot of money to be made from this segment of lending.  There is no reason the payday lenders, who are all essentially clones of one another, to completely dominate this field anymore.

Lending Club And The Peer Lenders

Getting a personal loan just got a little more personal.  The internet has created a lot of peer to peer applications and social media websites.  You're definitely going to recognize a bunch of the companies involved in this field, like MySpace, Facebook, Joost, and the list goes on.  The internet used to be a place where you went to view information.  Now it's a place where you can get information and provide information to others.  This is the social component, because now it's a two way street.  This has been the case in regards to music, commentary, sharing applications and so on.  And now that social component is going one step further, into the world of lending and borrowing money.

Several firms have organized websites where everyday people lend and borrow money from one another.  This is peer to peer lending and it is getting a lot of traction on the net.  This news is really big because it is such a departure from the status of lending firm versus the individual borrower. The banking industry will never be the same.

One of the most prominent (and first on the scene) companies involved in peer to peer lending is Lending Club.  This new firm is designed to match those who want to get a good return on their money with people who are looking to borrow money at a more favorable rate than they would get at a bank.

Here's how it works.  When you join Lending Club you have the option of loaning money or borrowing money.  The goal of someone who needs a loan is to obviously qualify for the amount they need and to have a reasonable (the lower the better) repayment terms.  No one wants a loan with a 23% interest rate, so they are going to search for a 11% interest instead.  This is just an example, but the point is to get the best terms possible.  On the other hand, the lenders are looking to get a better return than the banks and thrift institutions are willing to pay.  And now that interest rates have been reduced so drastically, the banks only want to pay a very small interest rate to their customers.

The whole purpose of Lending Club and all peer lending companies is to cut out the middle man, the bank!  With the internet and social media becoming so advanced, what is the need for the banker?  That is the theory that Lending Club has.  Their job is to match people who need to lend money with those that need to get a better return on their money.  The role of the banker traditionally has been to handle this.  And before the internet the banker was a necessity.  There would be no way for people to find other people who were willing to lend to each other.  But with the creation of modern web communications and the adminstrative firms like Lending Club, the process is not only possible but makes a lot more sense than just going to the bank.

Peer to peer lending is relatively new and will continue to grow.  A few other companies that are diving into this market are Prosper Marketplace and Loanio.  However, this business is still in its infancy and there will certainly be more players coming along.  WIth the bad economy looking as it's here to stay, it creates a permanent need for peer lenders.  First, the rough economy is going to make it harder than ever to get a loan at a traditional lending firm, whether it's a huge national bank or the local bank.  Savings and loans will also be more restricted (or go out of business) and credit unions will be limited as well.  On the other end of the spectrum, the bad economics will create an ongoing demand for capital to be loaned to working individuals who have trouble coming up with enough equity to buy a car, appliances, or any other substantial purchase.  Ongoing financial troubles for this country create a major need for peer lending, as a substitute for old time lending that has been the cornerstone of finance.

Lending Club has made some great strides into the future.  The user friendly set-up and the growing customer base makes Lending Club the best choice right now for peer lending.  This may change, as more players enter the market.  Peer lending could be the answer for people who are having trouble getting a loan through their bank, or for someone who is sick of paying the bankers way to much money.  Payday loans and credit cards are now running at 20% plus APR's, if not much higher amounts.  Short term borrowing doesn't need to be that expensive.  Peer lending is going to slowly eat away at the firms who have been charging the high rates.

Peer lending is going to be the future.  Might as well start getting involved now.

Emergency Payday Loan Justified or Not

There are more critics of payday loans these days than ever before.  Some state governments have come after them outright.  A lot of stories about bankruptcies, foreclosures and chapter 11 filings all contain a blurb or two about payday loans.

The feeling is that people who are in desperate situations will turn to payday loans without the proper understanding of just what the costs will be.  But payday loan companies tend to counter that they can alleviate certain financial hardships.

One instance that most people are familiar with is that of the NSF charge, which is the title that banks give to their fee they charge.  An NSF fee is charged when your checking account balance dips into negative when you have checks cleared or checkcard transactions posted against your account and there are not enough funds in the account to keep you from going negative.

Banks are ruthless when it comes to this charge.  One example would be a checkcard transaction that puts you negative by as little as three dollars.  Even though the bank only covered your balance by a paltry three bucks, they will often charge you a fee of somewhere around $35.  And that even includes if you go to the bank the next day and deposit the difference (three bucks) that made you negative in the first place.

It can get worse.  Say you happen to have four more transactions that were pending against your checking account.  The day after you are hit with the $35 NSF fee, you will see the bank clear those four more transactions.  Immediately after they clear those transactions you can expect to find another four of the $35 NSF fees posted against your account.

So for covering some small amount, let's say in this instance $22 total spread out over five different transactions, the bank will charge you $35 x 5 = $175 in total fees to cover that much smaller amount.

Given this situation, I would look twice at a payday loan.  The payday loan from any decent payday lender will not be anywhere near this amount of money.  And while the NSF charges against your checking account will be a black mark against you at the bank, there is no such prejudice against getting a payday loan.  So which is worse?  A $65 dollar payday loan where you have the opportunity to pay the loan off in 14 days?  Or several NSF charges that lead to a charge of $175 and a negative impression at your bank?  The payday lender will win this one easily.

Here's another example, concerning a person's electric bill.  Say an individual has had trouble paying their utility bills and now it has caught up with them.  A registered letter arrives in the mail stating that the person's electricity bill is substantially overdue and now the electric will be turned off shortly.  What are the options of this individual?  Even though the individual will pay fees with the payday loan, at least their electric will stay on.  Opponents who are against payday loans for every instance and purpose will not have an answer for what this person should do.  There would have been no way to qualify for a loan in that short of time, and what if they applied for a loan, waited four days and then were told 'no' they didn't qualify for any loan, for any amount.  Now what?  When it comes to emergency situations for keeping the phone turned on, the electricity turned on, a payday loan certainly should be considered a legitimate (if not desirable) option.

These are just two examples of how a payday loan can be used in a desperate situation.  Sometimes life deals heavy blows to people and often the normal channels of lending are not open to millions of Americans.  Payday lenders should be considered the lender of last resort.  There's no doubt, if you can qualify for a better loan (credit card, signature loan, etc) then you should take that opportunity.  Or if a family member or friend can loan you the money, then even better.  But many people will not have the luxury of a credit card with any credit left, no possibility of a traditional loan and no family members who will be able or willing to lend them money.

Payday lenders have a role to play in our economy, especially these days with the all the bad financial news.  Payday loans are a legal, viable option to people that need fast financing.