Payday Loan Companies Rely On Psychological Tricks To Help Keep You Hooked

There is clearly a demand in the United States and other developed western countries for payday loan services. Billions of dollars are borrowed each year from these companies from consumers who mostly have poor or no credit.

The question is are they a good and bad thing? This question is even more important given the broader credit crunch that is going on in the United States. The answer like many depends very much on who you are and where you live.

Clearly, payday loans are good for the companies that issue them. If they weren’t then companies would stop offering them. The fact that the industry has grown so large (e.g. 2,500 outlets in California alone) shows that it must be an extremely profitable industry.

So, are they good for consumers? Well people are clearly interested in the services, otherwise there would be no companies offering them. Moreover, no one is forcing people to sign-up for these services.  For some people payday loans are the only way to get cash quickly when they need it.

Having access to credit, even at a high interest rate, is often better than not having access to it. Nevertheless, consumers should be aware of some of the psychological tricks these companies use to make it seem like your loan is cheaper than it is.

Usually, payday loan companies will charge you a fee (e.g. $25 for every $100 borrowed) that masks the true interest rate. Credit cards interest rates are usually never more about 30% a year. On the other hand, when you factor in the rates charged by payday loan companies you can get equivalent interest rates of over 1,000% per year.

In conclusion, payday loans are a useful service to people in need. However, consumers should be made aware of just how much they are paying. The fees might not seem like much when you take out the loan but they quickly eat in to your income.

Thus, you get into a psychological mindset of dependency which can be very hard to break. Use payday loans cautiously or not at all and you will avoid these problems all together.

This entry was posted on Thursday, March 27th, 2008 at 5:22 am and is filed under Payday Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.