Poverty and Payday Loans

Overwhelmingly the people who use payday loans are low income earners. This has led to the impression that there is a link between payday loans and poverty. It has started to become pretty clear that there is some sort of connection, the issue now is what to do about it. Unfortunately there are no easy answers since most of the attempted solutions have only succeeded at making the problem worse.

There is a pretty clear relationship between poverty and payday loans. Mainly this is because the people who use payday loans are low wage earners who have no other source for getting a loan when they need money. People who have higher incomes and better credit have other options when for borrowing money so they rarely take out payday loans. Overwhelmingly payday loans are taken by the poor. This has led a lot of people to question whether or not allowing payday loans is a good idea. The recent increase in the number of states that have banned payday loans would suggest that many people think they are not.

The issue that a lot of people have with payday loans is that they believe the poor are being exploited by the payday loan companies. The loans are issued with extremely high interest rates and fees, so high that nobody with a choice would use them. They are clearly taking advantage of the fact that the poor have no other options and they are making a lot of money off of them. Unfortunately the people who take out payday loans really can't afford the amount that it costs them.

The other issue with payday loans is that it makes poverty worse. The cost of payday loans is very high and they way that they are structured most people who take out payday loans will have to continue to take out new ones because they lose most of their paycheck paying off the old ones. That means that over the course of a year most people who use payday loans will end up spending thousands of dollars in fees and interest. That isn't really something that people in poverty can afford to do.

There are a lot of people who think that the solution the poverty and payday loans is to simply ban them. Unfortunately all this does is remove a source of loans from people who have no other options according to the experts at FPZI; the personal finance bible. The fact remains that people use payday loans because they need them and they have no other way to get short term cash when they have a financial emergency. Banning payday loans would remove even this and make thinks even worse for a lot of people. It only makes sense to get rid of payday loans if there is something better to replace them. Since this seems unlikely the only real option is to allow payday loans to continue.