Payday loans are usually a type of short-term loans, made by high-cost lenders, and which constitute an option of finance for people with low-income which suffer from great financial distress. Translated in not such specific terms, a payday loan is taking money from a lender and paying them with high interest on the date in which you receive your next income. While this type of loan is not illegal, in ethical terms it is completely unjust for the borrower, while it assures huge profits to the lender. The biggest problem with the payday lender companies is the lack of transparency they have when transferring data to the other actors on the market so that inappropriate loans will be prevented or limited as much as possible. Transparency also works in the aspect that the more info the loan companies have on the applicants, the less risky loans they will grant.
The problem with the payday lending system that is getting again more and more popular after a few decades of falling in the shadow, resides also in the quite dark past of this type of loan, when in the 1920’s America and even earlier, it was associated with the illegal activity of the mob cartels, and with violence.
Of course, today’s payday loan companies have nothing in common with the practices of lending money used at the beginning of the 20th century. Nevertheless, the main players on the payday loans market are generically called “sharks” a nickname that leads us to the idea that maybe the origins of this type of money lending have not yet been forgotten.
While in some aspects payday loans are not the best possible practice given the fact that the companies practice excessively high interests, in other aspects, they seem more or less to have the same advantages and disadvantages like a random bank-oriented loan. Of course, unlike the random loans that you do at the bank, a payday loan is not for years but days, and the terms and conditions to be granted such a loan are much less restrictive if they exist at all than in the case of long term loans that one does at the bank.
There are some voices that emphasize on the fact that payday lenders do not practice such big interest rates if we are to compare with what are the charges a bank operates on its customers for different services all year long.
While the debate on the positive and negative aspects of the payday loans is still on and has supporters on both sides of the barricade, for the customers, a diversification of the market of loans and the coming out of the payday lenders as serious transparent businesses is a positive aspect. It is on the other hand normal for the banks who are so old in the lending money business to feel threatened of the more appealing packages of the payday loaners, the important thing is for them to be able to accept the challenge and manage to transform the competition that they have into a case study to analyze and learn from the experience of others.