If you have contacted the salesman a lender offering payday loans, you would surely have your attention deflected from the high interest charges. You would in turn, be sold on how an immediate cash injection would spice up your life and alleviate all you immediate problems that has to do with cash flow.
Lenders who specializes on payday loans often present a cheerful image. Once you obtain an approval within the hour, a fully fledged congratulations message pops up in your phone as if you have invited them to your wedding in 2 weeks. And if you think that is great service, wait till you repay the money. Because sometimes you will receive even more messages of appreciation once your payment check clears. Now that is the way an appreciative company should conduct itself.
So open is the market these days for micro loans that mass media marketing channels like TV advertisements and radio jingles are engaged by even the smaller players that are not in no way related to any banks.
In recent years where micro lending has taken the market by storm, partly aided with the opportunities that the internet brings, more and more licensed money lenders are getting into the action of trying to grab a bite of the humungous pie. No longer are consumers visiting banks as a protocol. No longer are people scratching at the walls of a dead-end due to bad credit. And with the emergence of the new generation where Facebooking and Tweeting online is the norm, merging traditional lending activities with websites and smart phones has become the new breakthrough way to conduct business.
These days you do not even have to physically step foot in a bank. All that is needed is for a borrower to download a fancy mobile app with a cute icon and cheerful splash page. Plug in their details and cash is disbursed into bank accounts within minutes of approval. Even for a tradition lender, you can just print out the application form, fill them up, and email a scanned copy for approval and disbursement.
The argument against these micro lenders is that they charge extraordinarily high interest rates. But these are not scams of any sort. As long as they spell out clearly what a borrower is getting into, who is anybody to judge a borrower as crazy. Micro lenders are possibly the only avenue left for someone who is unable to get a conventional loan from a bank on cheaper rates. And these predicaments are the result of stereotyping and ruthless judgments passed down on them via credit histories and credit errors.
Is this really what we should encourage payday loans for?
However, a clear line must be drawn on what is responsible and irresponsible lending (if that is even possible). Because when someone is already deeply into debt, is it really a helpful move by packing even more debt into their lives? Even if debt-ridden individual acknowledge the terms of a micro payday loan and willingly accepts it, should a lender practice a little moral authority and say no? That is the question isn’t it.
Let’s not forget that loan companies are also profit driven. If there is a high chance that a borrower will be unable to repay their loans, why would they give it out the in first place and chunk the sales immediately into their bad debts column of the balance sheet. It is not difficult to find people who bear a grudge against money lenders. On the other hand, it must also be noted that there will surely be people who have been massively assisted by them. It’s just that newspapers usually prefer to dramatize complaints rather than praises. It sells more papers this way.
We should also not forget that the recent years of boom in the payday loan industry has coincided with a period where credit availability has tightened amid global economies on the brink of collapse. And let’s not forget that the mobile revolution only started in the late 2000s. And because of the convenient access to quick money with the shrewd exploitation of technology and the elimination of an embarrassing face-to-face meeting with a bank officer, it is no wonder that such services are being embraced with open arms by a considerable segment of the market. A person can actually take up a loan and never have anyone know about it. There is no danger of being spotted in the bank, and no need to explain themselves to their spouses. Maybe people are willing to pay a huge premium for the removal of social stigma?
It can be pushing it to say that this fine positioning of social stigma has enabled loan companies prosper. But emotional aspects are often the reason why consumers are willing to pay premium prices for products and services. For example, a house with a great ocean view could be worth $800,000. But for a buyer who fell in love with the view could value it at $1,000,000 and willing pay that price. And a leather handbag could have a cost price of $200, but it retails at $2,000. So when a consumer buys it, if there is any argument on corporate ethics, should it be placed on the retailer who sell at radical prices or the finance company who is willing to finance it? As you can see these issues can open a whole can of worms.
When you find out that micro lenders can charge 1% a day for their loans, you might immediately call that extortion and assume that only the desperately vulnerable will bite the bait. But frankly speaking, that is like insulting a borrower without know him as a person. People have their own reasons to do what they do. And most of the time, others find it hard to comprehend why they do it. That does not mean that they are wrong. It is just like the classic line used in relationship – “I don’t know what he is thinking”.
There is also a crucial social role that payday loan companies play. If we assume that borrowers who take up these loans are desperate and unable to obtain any money from a traditional lender, they might turn their attention to the black market where loan sharks practicing predatory lending might threaten their livelihoods if they are unable to pay. At least with legal lending, borrowers can face up to their creditors and negotiate within a legal environment. It would also be easier to tell your mother you owe money to a company rather than a loan shark.
But even for all the good that they do, lenders should avoid pushing the limit in their marketing messages. Advertising expensive loans for luxurious holidays and designer handbags does not enhance their public images at all. Because in some capacity, that is like promoting irresponsible borrowing. Borrowed funds should only be used for essentials or emergencies. The simple philosophy people should get into their heads is that if they cannot afford luxuries, don’t go for it.