Did you know that there is a payday loan alternative? Did you know there are several alternatives? Did you know that you don’t need to get cash now from payday loan lenders? Do you know just how expensive these types of loans are? Do you know all the facts about payday loans?
Is it possible that just by having additional information, you can really influence potential borrowers to actually obtain a fewer number of high-priced loans, like payday loans?
Well, as it turns out, this may just be that case. There was an article in the Wall St. Journal that referenced an article by the University of Chicago’s Marianne Bertrand and Adair Morse which was published in the December 2011 issue of The Journal of Finance.
This article references and details and experiment that was done at various payday loan retail establishments. The people who performed this study determined that a little bit of information can have a profound affect on people’s behavior. The people running the study determined that when potential payday loan borrowers are educated enough to allow them to consider the fees, interest charges, and all of the costs that are associated with payday loans, they would actually decrease the number of payday loans they would undertake.
The way payday lenders require usually work is that they will require that their borrowers write a check to them that is dated two weeks after the date of the loan. On the date that the loan comes due, the payday loan lender would then cash that check. The check is (naturally) more than the amount that was borrowed, sometimes as much as several thousand percent in annualized interest charges.
The entire payday loan industry is always under scrutiny every since it first appeared in the marketplace, some twenty or so years ago. A lot of consumer groups have suggested that the interest rates that are charged should be considered illegal. In fact, there is a strong belief that the people who obtain these types of loans really don’t understand the ramifications of these types of loans. These people are desperate for some extra, short-term cash, and they don’t really fully grasp just how much extra they are actually paying for the right to borrow some extra cash.
In response to the claims that these groups have made, some states in the USA have made major changes to these loans. In the extreme, some states have completely shut down this industry. In other states, they have placed caps on the amount of interest that lenders can charge on payday loans.
The Journal of Finance article takes aim at the assumptions underneath some of the criticism about payday loans – that being that these types of loans do nothing more than prey on the poorest people in society. These people don’t fully comprehend the costs that are associated with these types of loans.
The group set out to ascertain exactly how much information potential borrowers had about these types of loans and as to whether or not a greater amount of disclosure of costs would result in a decrease in the amount of borrowing. The results are not at all surprising. It was determined from this study that the more potential payday loan borrowers know about the long-term financial impact of these types of loans, the less likely they were to obtain these types of loans and instead seek out payday loan alternatives.
In fact, by just having a little bit more information disclosed to them about the long-term interest rates and fees that are associated with these types of loans resulted in a decrease in the total payday loan volume by these potential borrowers of an astonishing 11%. The more you know about payday loans, the more likely it is that you will try to seek out a payday loan alternative.
