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.
