Payday Loans: Do They Boost the Economy?
Money is the basis of a Capitalistic society. It is used to build things, to trade, to finance new projects, or just for enjoyment. When the economy goes bad, it’s usually because people do not have enough money or businesses don’t have enough money to keep the Capitalistic engines working smoothly. Lending institutions help the economy, and payday loans are a particular segment of lending that helps people with fewer resources to get cash quickly.
Payday loans were first created for the portion of the population who had steady jobs but either poor or no credit. This includes seasonal workers, low-income people, or even students who don’t have a credit history yet, but they work. The money that is added to the economy can help to pay for household appliances, emergency home repairs, or medical bills. Without access to cash without a credit check, many of these emergency items would not be purchased and the loss of revenue to doctors, construction workers, and retail could be significant.
The risk a payday loan store takes when making loans based on a person’s job history instead of their credit history is that they may not be paid back. There is no record indicating a person’s willingness to pay and the clientele may be low-income and not be able to pay as promised. It is a very high-risk loan for lenders and as such the lenders place a high interest rate on these of loans, which are considered “unsecured.” While the industry is being constantly debated because of the high interest rates, the fact is that these loans provide a needed service for people who can’t take out conventional loans because of poor or no credit histories. When emergencies strike, an interest rate is usually a trivial consideration when compared to the value that the money provides in terms of services and the ability to do commerce with others during difficult situations.