How much do you know about payday loans ? If you use the internet a lot, then you should have seen the ads claiming that you can get money quickly or that it does not require a credit check. Millions of Americans turn to payday loans every year and their transactions amount to billions of dollars. So the payday lending industry is a major one and it affects the lives of a lot of people.
Payday Loans and You
Payday loans are short term loans that you can take out for small amounts. The period of the loans normally last from 14 days to 30 days. The amount borrowed would usually have to be paid back in full, including the interests, on the next borrower’s payday. These loans are designed to help consumers make it until the next pay check.
Other Qualities of Cash Advance Loans
There are other qualities of cash advances that make them ideal for many consumers. One quality that makes it very popular right now is that it does not require a good credit score. Because of that, many consumers who cannot qualify for other financial products turn to payday loans. Another quality of cash advance loans that make it seem like a great idea is the fact that the processing time is very fast. Most payday lenders claim that they can process loans within the same day the application has been filed. That makes it ideal for cash emergencies when the speed of getting cash is what matters most.
Another quality of payday loans is that there are no restrictions as to how the money can be used. When you use other forms of credit you are held back by the restrictions. You can only use a car loan for purchasing a vehicle for example. With payday loans, no restrictions exist and even though the amount that you can borrow is limited, that freedom is a convincing factor for many consumers.
The lack of documentation is also another thing that draws many borrowers to payday loans. In most states, there is no need for borrowers to submit documents that would support their loan applications. All they have to do is provide the information being sought by the lenders on the application forms. The convenience of getting short-term cash loans is also another reason why so many consumers are turning to them today. People don’t have to leave the comfort of their office or home in order to get the loan they need. They can do it while sitting in front of their computer. That’s a great convenience.
Payday Loans for Social Security Recipients
One market that payday lenders are tapping into now is the portion of the population that receive social security benefits. These are the elderly and the disabled who are receiving limited income. The payday lenders claim that they are helping out these consumers. Everyone can use some additional inflow of cash from time to time and social security recipients are no different. Their situation is even more precarious because they have limited resources when it comes to getting cash. Few of them would have savings and they have very limited options when they encounter financial emergencies.
Most consumers would turn to borrowing money when they are faced with financial emergencies that their income could not handle. The problem with people on limited income is that there are few if any regular lenders who would be willing to give out loans to them. Aside from the fact that they have limited income, many of them would have bad credit and so they are considered to be high risk borrowers. Very few lenders would be willing to take on that sort of risk.
This is where payday lenders come in. The credit score is not a decisive factor and as long as the consumer has a regular source of income he can qualify for a loan. People who receive social security benefits can then use their monthly benefits for paying back what they have borrowed.
They can get the cash that they need in a fast and convenient way. The whole transaction can be done online. That makes it even more ideal for the elderly or someone with disability who would have a hard time going from one place to another. All they have to do is to visit the site of the payday lender and they can apply for the loan that they need in no time at all.
The Pitfalls of Payday Loans for Social Security Recipients
There is a growing trend now in the payday industry and that is the targeting of people with limited income as borrowers. An increasing number of lenders are lending out money to seniors and people with disability and while some do not see any problems with the practice, experts are saying that it should be controlled.
Payday lending is full of controversies. While millions of transactions are done every year, studies suggest that most of those are just loans that were “rolled over.” That means the loans were extended because the borrowers could not make the payments on time. Another disturbing fact about payday loans is that only a very small portion of the borrowers are actually new users. Most are repeat borrowers. That means many of those who are forced to take out payday loans are stuck with it and they have to keep on borrowing to go on.
Those facts are in connection with regular payday loan users, those with regular jobs and getting regular salaries. If they are having problems when it comes to handling payday loans then just imagine someone on a limited income taking out the same kind of loan.
Limited Income Plus High Interest
The problem with payday loans for people receiving social security benefits is the combination of limited income and high interest. Social security benefits usually are not enough for those receiving them. On top of the regular living expenses such as food, clothes and home maintenance costs, recipients of these benefits have other expenses to think about as well. They are either seniors or handicapped. That means they have higher medical expenses. They might have some health problems that would have to be treated or they require regular medicines which could be expensive. The benefits that they get are usually not enough to pay for all of their expenses. So when the cost of having to pay for a loan is added on top of all that, then there would really be nothing left and in fact it might not be enough.
What is even more disturbing is that many of those on limited income know about the high cost of payday loans or the difficulties that they would encounter in paying it back. Despite that knowledge they still go ahead and take out payday loans simply because they have no other options.
Payday Loan Marketing
Payday lenders on the other hand claim that they do not promote the use of their products for resolving long term financial problems. This means they are not recommending it for problems that result from lack of cash or to pay for things that should be covered by the usual income. Such is the case of people with limited income or those who are on social security benefits. Because the amount that they get from the benefits is limited, they are forced to borrow money to pay for the most basic of their necessities. Payday lenders claim that they do not encourage the practice.
While it is true that payday lenders never encourage consumers to use payday loans to resolve long term financial issues, they ultimately benefit from people with limited income who keep on borrowing from them. They benefit from people who fall into debt traps.
If you are a social security recipient and you are feeling the pinch of having a limited income, then don’t try to get a payday loan right away. Consider other options first because you are sure to have some difficulties when you have to pay back the loan. You might be forced to keep on borrowing.