The fees levied on payday loans are used to cover the cost associated with the processing and verification of loan applications, capital cost and overhead expense. The key difference is that such cost is spread over a larger business portfolio for companies that specialise in larger loan packages, while payday lending companies draw such operating funds from their margin on loans with smaller amounts. This explains why banks and other entities that provide traditional loans charge lower annual interest than a number of payday lending companies.<\/p>\n

Payday lending companies also have greater risk than banks and other companies that specialise in traditional loans. In most cases, short term loans have higher default rates and this means an escalation in the risk premium of such loans, which ultimately increases the cost of such loans. Thus, we have a situation where the interest rates of payday loans and such other types of short term loans are inevitably higher. Providers of short term loans are forced to find a way to recoup their investment and maintain a fair margin for the service they provide to remain viable.<\/p>\n

Because of its expensive nature, payday loans and other forms of short term loans should never be tapped as a main financial option. It is a short term cash solution and the decision on whether one gets a payday loan or not should be made by weighing the flexibility of having a reliable source of instant cash against the cost of such loan. You must always decide on the cost or foregone benefits that you may incur in the event you decide against getting a payday loan for a short period of time.<\/p>\n","protected":false},"excerpt":{"rendered":"

The true cost of payday loans is one of the ticklish issues and critics of this type of short term loan cite the \u201cexorbitant\u201d APR off the bat to justify their position. The implication of arguments anchored on this annualised metrics is that payday lending…<\/p>\n","protected":false},"author":3,"featured_media":1832,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[224,225,20],"acf":[],"yoast_head":"\n