Small loans are sometimes necessary to help those short of cash to cover an unexpected expense. Small loans are used to cover a repair bill or to replace a household item that has suddenly lost its will to perform as expected.
Small loans are a bridge covering a onetime cash flow problem. Anyone who lives paycheck to paycheck with very little savings may not always have the necessary funds to cover anything not already accounted for in their personal or family budget. The availability of small loans makes it possible for the borrower to take care of business without extending an overdue bill or just straining an otherwise already strained budget.
Small loans are a necessity today, as the economy continues to play havoc with peoples earning power and available funds to care of their financial obligations. Small loans, available through payday lending companies, are often criticized for the practice rather than be supported for the help it provides for the borrowers. The finance charges are higher than a standard bank loan, but most people that seek small loans from payday lenders usually do not qualify for a bank loan.
Small loans offered by payday lenders, are not subject to a credit check. The applicant has to be at least 18 years old, have a steady job and income and a bank account that accepts electronic transfers. These simple requirements make it easy to obtain such a loan and take care of the financial obligation in a timely manner. There is the matter of paying the loan back in a timely manner that may also be a challenge for the borrower. Those seeking payday loans probably have no other borrowing options. They are at the mercy of the lender who usually charges steep interest rates, usually between 15 and 35%.
Critics of payday loans call the interest rates and the whole payday loan practice a way of taking advantage of a person who is already financially stressed. Adding the cost of a high priced loan to the borrowers other financial responsibilities will provide an additional strain to their finances. If banks and credit unions were to step up to the plate with small loans at an affordable rate and qualifications that would include those with credit challenges, payday loans would not be necessary.
Not everyone who needs a loan, needs thousands of dollars lent out over several years. Sometimes a few dollars, often under $1,000, is necessary to bridge a gap for a short time until the borrower gets paid or other funding becomes available. The states that regulate small loans available through payday lenders have taken a step in the right direction. They have recognized the need for such loans. States that have banned payday loan practice have removed sometimes the only option a borrower has to obtain funds in case of an emergency, if credit is an issue.
It is easy to tell someone to fix their credit and qualify for a bank loan, but the circumstances involving questionable credit is not always easy to fix. Bad credit is not always the result of irresponsible financial practice on the part of the borrower, but the result of other problems that are not so easy to fix.