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Legislatures May Say No Credit To Bad Credit People
Imagine you are poor and have bad credit, and an emergency occurs and you need $1,000 fast cash. Let's say; for example, a family member is at death's door and you need to buy plane tickets right away. You search online but every credit card application you submit gets denied. You don't own a home or you don't have enough equity in your home, or your credit is too bad to get an equity loan. Yet there's still hope. Even when all other credit options fail, you can; for the moment, obtain a short term cash loan (payday loan).
Let's relive the above situation, but this time imagine there are absolutely NO payday loans available to anyone, anywhere in the U.S., because legislatures have outlawed them. Now what do you do?
If legislatures ban payday loans (some states already have), what are poor people with bad credit supposed to do when they have an urgent expense? Will legislatures loan them money? Not likely.
Bad credit cards and high risk loans serve needs unfullfilled by other creditors and lenders.
Comparing Apples to Oranges
The problem; say legislatures and opponents, is that payday loan lenders charge an incredibly high interest rate when the fee is re-calculated using the same equation as a typical personal loan. The problem with their argument, is that they are comparing apples to oranges. Certainly if you recalculated the fee to equate to an interest rate it is indeed quite high. But so is the level of risk. Just as life insurance companies have different rates for high risk people (people in high risk demographics), so do creditors and lenders. It's understandable that an entity which offers an unsecured, no collateral cash loan to high risk people should indeed be allowed to charge an equitable fee to offset the high risk, and to make-up for loans which become defaulted. So once again the question is raised: If lawmakers outlaw payday loans, will they themselves offer unsecured, no collateral loans to poor, bad credit people? No, because they dare not accept the risk. So how is it that they have the nerve to judge payday lenders who offer a valuable service to the general public, and is one of the fairest credit lenders in the nation? Unlike banks and other loan lenders, payday lenders do not charge different rates for different credit ratings. A person with bad credit pays the same fee as a person with good credit.
Oh, Well?
There are indeed emergency loan situations when people need to borrow money quickly. Let's once again image an emergency situation of a bad credit person, who needs a $500 loan to pay rent or will have to pay an extra $30 late fee. Without any other credit nor a payday loan, the person writes a check and post-dates it in hopes the landlord won't cash it until payday. Yet the landlord immediately deposits the check. The check bounces, and now the person has to pay a $30 bounced-check fee plus a $30 late payment fee to the landlord. This poor, poor person is now in an even worse credit rating situation, plus is $60 poorer. Yet if a payday loan was available, the rent would have been paid, there would have been no negative impact on the credit report, and the fee would have been only $30, thus saving the poor person $30.
Why Are Some People Burdened By Payday Loans?
The answer is the same as for this question: "Why Do Some People Have Credit Card Debt?" Things happen. Some people make credit card charges with every intention of paying off the balance in full each month, just like some people get a payday loan with every intent of paying it off immediately upon their next paycheck. But then some other disaster strikes. Or, the person simply mis-manages money. Is the problem with the payday loan itself, because of too high of a fee? No, no more so than using the excuse that a credit card interest rate is too high. And while payday loan rates are much higher by comparison, so is the risk level accepted by the lender. Yet once again, it's not fair to compare apples to oranges. Look at the situation this way... if you have bad credit and apply for an unsecured credit card that offers a standard line of credit, it could cost you upwards to $300 in fees to get the card, and your credit line could be below $1,000. Whereas a payday loan fee is only $30, and offers up to a $1,500 loan with no additional interest (unless you roll-over the loan).
Payday loan (also called a bad credit personal loan, cash advance and payday advance) is the practice of using a post dated check or electronic checking account as a promisary note to repay a short term unsecured cash loan.
Personal Loans Which Are Not Payday Loans:
- Cash loans which use the equity of a home as security for repayment.
- Cash loans with no homeownership required nor any other type of collateral (lenders of this type of personal loan typically do not approve bad credit people, and may require active account membership in the lender's institution). Many banks have stepped-away from long term unsecured personal loan lending, instead pushing their credit cards and their secured lines of credit.
Cash Advances Which Are Not Payday Loans:
Unsecured cash loan options for poor, bad credit people are limited. Even if you are not poor and if you don't have bad credit, speak up for your credit rights as well as those of your fellow Americans. Notify your legislatures that you are not too ignorant to make you own credit decisions and that you are very capable of managing your personal finances. Tell them not to take away the ability for poor people and people with bad credit to get an unsecured cash loan instantly whenever they need one.
Otherwise, perhaps the day will come when only the rich and influentual will be granted credit because all the high risk lenders who would have loaned money to poor, bad credit people had become outlawed.
Related articles:
Where have all the bad credit cards gone?
Bad credit financing offers rebuilding
Bad credit people denied loans
Bad credit lenders facing high risk
Bad credit payday loan good for the economy
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