Payday loans and online lenders have horrible reputations for causing more trouble than they’re worth. There are countless stories of payday loan services giving out bad loans that have all but ruined people financially thanks to high fees and astronomical interest rates. Many people wonder why these companies stay in business if they are so shady and predatory. After all, with such horrible reputations it stands to reason that even the poorest and most desperate people would know better by now. Yes, many people do know better than to use a payday loan service if they don’t absolutely have to, but the fact of the matter is that these companies are very successful for some very good reasons.
The biggest reason why payday loan services are so successful is because they’re so tempting to those in need of emergency funds. Most people who are approved of a loan through a payday loan service receive it almost immediately, which solves whatever short-term problems drove them to the service in the first place. They also usually require no credit check, making them look like a beacon of hope for those with really bad credit.
Unfortunately, the other reason why payday loan services are so successful is because they’re so expensive. They may appear to be handing out money to whoever needs it, but that money comes with a high price. The reason why they can get away with this seemingly predatory practice is because the borrowers have no choice. They are in need of emergency funds, and if they have poor credit scores they cannot get a loan from a bank. There is a sound business-related reason for these high fees, however. Payday loans are considered to be high-risk loans, so there is a good chance that a loan could fall through. The fees have to be higher so that these services make a profit even when a handful of the loans they give out fail.
In short, payday loans are expensive because it’s the only way these companies can stay in business. They are high-risk loans, and there’s always a chance that the company could lose money every time someone is approved for one. Whether or not that makes the loan services predatory and shady is open to debate. One could argue that it’s irresponsible for someone to take out a loan that cannot be repaid, but it could also be argued that it is unethical for a lender to prey on people in times of trouble. Loans that are repaid on time cause little trouble for the borrower or the lender, and in a perfect world this is how payday loans would always operate. Sadly, this isn’t a perfect world, and borrowers should always be wary of taking out high-interest loans.
