Bad Credit Payday Loans Technically Long-term Credit Facilities!

Interesting research findings on bad credit payday loans are being witnessed as more studies are being done and one conclusion is that these loans are technically long term credit facilities. The payday loan market has previously lacked any credential research but today we are seeing more studies about this lucrative financial market. The truth is that you may not believe the reality on these payday loans. Critical information points out that these loans are technically long term and therefore, they are not serving the purpose they are intended to serve.  Therefore, the big question is; are payday lenders sitting in their cocoons hoping that the market takes its own course?  Well! Here is the reality about payday loans;

• Close to one-third of borrowers are taking loans totaling between 11 and 19 in just one year.
• The loans are serving the underprivileged consumer.
• Many of the consumers are already struggling with debt or bad credit.
• The lenders are grooming consumers to become repeat customers.
• Only about 13 percent take one or two payday loans per year; the rest take more than that.
• About 14 percent of payday loan borrowers are taking more than 20 payday loans in 12 months.
• People are using payday loans to meet their regular expenses.
• Many of the consumers have been trapped in a vicious circle.

What the aforementioned information tries to explain is that bad credit payday loans have transformed from short term one-time credit facilities to the order of the day borrowing. People no longer perceive payday loans as emergency credit facilities for the cash strapped consumers. The first borrowing turns out to a series of never-ending loan applications, which put the consumer into a vicious circle.

Payday loans are presented as short term loans were you get the cash now and pay in your next paycheck. But this is not the reality on the ground as what is happening is that many consumers are either rolling over the loans or repaying the current loan and taking a new one. According to a report released by the Consumer Financial Protection bureau- CFPB, it was found that as many as a-third of the borrowers were taking more than 11 loans and not more than 19 loans in one year.

This means that in a period of 12 months, consumers were borrowing between 11 and 19 payday loans. In the same report, it was also revealed that about 14 percent of borrowers were taking about 20 or more payday credit facilities within 12 months. This clearly demonstrates that these loans are not short term but they have been transformed to long-term credit facilities.

Since the lenders are on business mission, they encourage their clients to roll over or take new loans after repaying their present ones. This makes the whole structure of payday loans like wonga loans ideally unrealistic. Another surprising finding is that the average borrower is a consumer who is already struggling with finances. For one, the consumers who seek for payday loans are those who are turned back by banks because of their bad credit.

Therefore, the bad credit payday loans are helping the cash-strapped consumers and therefore, the borrowers are willing to pay the price. According to the CFPB report on payday lending, it was established that only about 4 percent of borrowers had an income of more than $60,000 in one year. A vast majority of the borrowers were surviving with annual incomes of less than $30,000.

If such a consumer who is financially tied is subjected to high interest rates and rollover of payday loans, the repercussions are daunting. Consumers are actually suffering in silence and something needs to be done. Apparently these consumers do not realize that there are other options they can take to prevent relying on these loans.

First, they can use bad credit credit cards, which could allow them take small loans against the cards to solve their emergency cash needs. There are also other options like peer to peer lending and bank cash advances. The problem with peer to peer lending and bank cash advances is that they may not be available to consumers with bad credit. There has been a debate on whether banks and credit unions can bridge the gap within the payday lending practice.

The payday lending market is just too risky for these depository institutions or entities and the regulations governing them do not allow them to impose very high interest rates. In the same CFPB report, it was established that the largest group of borrowers were making less than $ 20,000 in a year. This is a financially crippled borrower who is been subjected to risky loans in the name of bad credit payday loans, which attract very high interest rates, loan rollovers, and a vicious circle of borrowing.