What Is A Loan Shark Anyway

Category: Finance.

Are Payday Loan Providers Loan Sharks? There are many articles and commentaries on the web purporting that payday loan providers are nothing more than loan sharks in disguise.

It seems that I have been seeing these two terms side by side a lot these days. What is a loan shark anyway? What is a payday loan provider? According to Merriam Webster, a loan shark is one who lends money to individuals at exorbitant rates of interest. It is a financial institution that offers short term loans( obviously called payday loans) to anyone who is in need of them. It depends on how you wish to look at things.

Do they lend money to individuals at exorbitant rates of interest? For example, certain sectors which are trying to bring down the payday loan industry will not hesitate to say yes and provide figures such as 1000% interest and the like. As such, it is really not fair nor is it logical to compare different conventional loans to payday loans in terms of" interest. " They are not the same banana. Yet what they do not understand- or maybe do not want to understand- is that payday loan providers do not charge interest in the way conventional loan providers do. If you ever have taken out a payday loan, you would know how the charges are applied. So for example, an individual borrows �50If the payday loan lender charges �20 for every �100 borrowed, the borrower would end up paying back a total amount of �60Unlike with interest rates, which we all know fluctuate, the amount that a borrower has to pay back in regard to his payday loan does not change. For payday loans, instead of computing the interest or APR or whatever term you want to use, a fixed fee is charged for every certain amount borrowed instead.

It is a fixed amount, period. According to Annette Stewart of Provident Financial: APR doesn t properly reflect the true cost of short- term loans. More so, APRs do not always really reflect the real cost of a loan. Also, this is a fixed, all- in charge. What she did not mention is the other important fact when it comes to payday loans- the ease and convenience of it all. It doesn t change if a customer stops payments for a while or reduces them.

We all know how complicated it can be to acquire a traditional loan. It can take weeks- even months- just to get a simple loan. Mainstream banks and financial institutions have this long and arduous process when it comes to lending money. Payday loan providers, make it easier, however and more convenient for those borrowers who need the cash as soon as possible. After all, you are paying for more than the loan amount but also for the perks. Naturally, this kind of service warrants a certain price as well.

So are payday loan providers loan sharks? They are merely businesspeople who have found their niche. I don t think so. They are supplying a solution to an expressed need.

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