Most people have a negative
perception about payday cash advance loans. There has been a lot of media
coverage for the last couple of years that seems to emphasize on the negative
points of these products without exploring the benefits conclusively. The bad
press that the cash advance loan industry received and is still receiving is
very much biased and should not be relied on. In this article we will look at
the common faults that are highlighted and also balance the argument with the
inherent benefits that the service provides to borrowers.
The first negative point that you
hear about cash advance loans is that they are expensive. For a $1000 loan, you
may be charged $50 after a month. These are normally the quantum that cash
advance loans go for. Rarely does a cash advance loan exceed $1500. The
negative press will tell you that this loan is equivalent to a 60% p.a. loan
from a bank if you look at it on a per annum basis. Although this is
technically correct, it is a big mistake to value cash advance loans in this
manner.
It is first a mistake because cash
advance loans are designed to be short term loans which are to be cleared in
less than a month. I have yet to see a case where someone takes out loan after
loan for a year. It simply does not happen in real life. If you look at it as a
product that it is indeed to be, namely a loan with a duration not exceeding
one month, the interest rate is actually only 5%. If you look at it the proper
way, these products are actually relatively cheap for the convenience they
offer.
In the grand scheme of things, $50
to pay for emergency cash in your bank really isn't that expensive. For most of
us $50 is certainly much more affordable than a negative post on your credit
statement. It is certainly cheaper than to have to pay for late fees or to
incur huge penalties just because you do not have to that extra bit of money in
your account to settle your outstanding debt. It is also cheaper in comparison
to the face that you might lose from asking your friends or colleagues to lend
you some money to keep your ends tied.
In addition to the "price"
of cash advance loan products, the negative media has also concentrated on the
rigidity of these products. We actually think that this is a benefit. The
rigidity serves two purposes, the first and the most importantly is to enable
companies to not have to go through severe and often times crippling rules that
govern larger lenders. With this, many smaller companies can be set-up and
allows this service to be rendered to more people. The second purpose is to
limit the exposure of clients to excessive interest rates. Although clients can
request for a "roll-over" if they don't have enough money to settle
their current tenure, it isn't as easy to do as most would think. It is up to
the lender to approve or decline the request and the borrower absolutely has to
make the request. There is no keeping quiet and hopping they will roll it over
for you.
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