Summary. Businesses receive money on a daily basis, and begin using and benefitting from that money immediately through investing and expanding the business. Employees however, typically wait a week, a month, or maybe more to receive their wages, benefits, and bonuses. During that time, the employees wages benefit someone else. The employee is working, but not receiving compensation for their labor. Depending on the circumstances for an employee, the timing of a personal investment or paying a bill on-time could result in hundreds of dollars saved or earned. For a nominal fee, Payday Loans and Cash Advances make it possible for employees to receive their wages as they earn them. Learn more by visiting the Payday Loans page on Wikipedia.
Choosing a Lending Institution. At the time of this report (22 November 2008), a Google Search on Payday Loans produces over 9.7 million results. It’s difficult for consumers to know what lending institution go choose. So, we’ve developed a selection system based on the Company Legitimacy Ranking System developed by the Consumer Defense Resource Group. Surprisingly, most of the lending institutions in the top ten listings on Google don’t pass our selection system criteria.
- Poor Website Design. Does the institution’s website look like it was designed by a teenager? If so, don’t do business with them. An example would be FastCashOnline.com
- No Physical Address. On the Contact Us page of the website, does the institution offer an actual address of where they are located? If not, don’t do business with them. Examples would include:
- Malicious Website Code. Has the “lending institution” website been identified by Google to contain malicious code designed to hack into your computer? If so, don’t do business with them. An example would be GrowingYourBusiness.net which is #9 out of 9.7 million listings which is a reminder that high Google rankings don’t necessarily mean a company is legitimate.
- Paid Listing. Does the lending institution show up in the Google results only as a paid advertiser at the top of the page or right hand column? Then their listing probably hasn’t been earned, it’s just been paid for. So, there’s no guarantee they are a good company.
Preferred Lending Institutions. A preferred lending institution will make it through the above selection system. You may want to check with your bank to see if they offer cash advances. For example, US Bank offers cash advances up to $500 in $100 increments at a fee of $10 per $100. Since you already have an account at your local bank, there’s no need to fill out additional paperwork. Besides your local bank, here are some examples of lending institutions which have been reviewed and approved by the Consumer Defense Resource Group:
- AdvanceAmerica.net – “Advance America Cash Advance is one of the nation’s leading payday loan companies. The company was founded in 1997 and since then has helped millions of hardworking Americans overcome financial challenges.”
- CashNetUSA.com – “At CashNetUSA we are dedicated to helping our customers bridge the gap between paydays from the privacy and comfort of their own home. Our next-day cash advance loan services are a quick solution to household expenses, emergency money needs or monthly bills. Make Anyday Payday™ with a hassle-free payday loan from CashNetUSA.”
- CreditLoan.com – “Smart borrowers compare payday loans in order to get the best loan arrangement, with a repayment agreement they can adhere to.”
- DollarsDirect.com.au – “When your resources might be limited, a payday loan can help. Apply for a payday loan cash advance today.”
- NationalPayday.com – “At Nationalpayday, our goal is to provide you with all the inforamtion you will ever need to know before you apply and receive an online payday loan from us.” With their website established in the year 2000 (see DomainTools.com), NationalPayday.com is one of the oldest lending institutions that offers fast and easy payday loans. For more information, read a full report on the AdvanceCash.info website where you can also read customer reviews.
Borrower Drawbacks. Those who live from paycheck to paycheck, may quickly find themselves living from payday loan to payday loan. When the benefits of taking out a payday loan do not exceed the costs (fees), then an employee will experience ongoing losses. The problem with habitual borrowing, is that over time an employee may spend hundreds of dollars on fees. For this reason, some institutions, such as US Bank, offer a cash advance on a monthly basis, but for no more than nine consecutive months. With US Bank, a borrower may pay $50 for a $500 one month loan. The high fees are somewhat justifiable. The administrative costs for managing loans can be fairly high. For larger loans, these costs can be absorbed through the interest rates charged. However, for smaller short-term loans, it make sense to charge a higher fee.
Borrower Advantages. For those who are living on limited financial resources, a payday loan may make sense in some scenarios. Below are a few examples.
- Car Repair. You’re tight on money. You need your car to get to work every day (to your three jobs). One day the car has a breakdown and stops running. The repairs will be more than you can afford until payday which is two weeks away. Public transportation is either unavailable or doesn’t meet your needs. If you take a cab to work for two weeks, you’ll pay $200 in fairs. If you get a cash advance, and have your car repaired, you’ll pay $50 in fees, but save $150 by avoiding cab rides.
- Income Delay. You run an auto detailing business. You’re tight on money and depending on a check to come in the mail that was promised to arrive on a certain day. Based on that, you promised the phone company you’d pay your bill by a certain date and they won’t allow an extension beyond that date. You depend on your phone for your income. If your phone is disconnected, you’ll need to pay a reconnection fee and you’ll lose about $1000 in income from lost/missed customer calls. If you get a cash advance, you’ll spend about the same money as if you paid a reconnect fee on the phone. The cash advance will help you keep your phone connected and earn the $1000 in income you might have lost.
- Credit Score. You’re tight on money. A bill is due. To this point, your credit has been fine. However, if you don’t pay a particular bill on time, you’ve been told that you’ll be reported as delinquent and this will mess up your credit history. You’ll also be charged a late fee and an overage fee. By paying a cash advance fee, you can keep your good credit rating, and be out less money than if you’d paid the late fees.
- Overdraft Fees. In reviewing your recent banking transitions you realize you made a mistake and have ten checks that will be coming through without having sufficient funds to cover them. The checks were for very small amounts – ten checks at $5 each. The overdraft fees could be $300 or more for the bank to “loan” you the $50 for a short time to cover the checks. Most banks charge about $30 per check for overdraft fees. This amounts to extreme usury, yet it is permitted. So, you’re better off paying $50 to get a cash advance that can cover those checks. A $50 payday loan fee is nothing compared to multiple overdraft fees.
Investor Earnings Potential. For an investor who loans out money for payday loans, earnings can be very good. As mentioned above, $500 loaned for one month can produce a $50 return. By the end of a year, that same $500 loaned out every month will produce $600 in interest for a total of $1100 by the end of the year. So, similarly, $500,000 by the end of a year would more than double to be 1.1 million dollars. For banks, this practice is very lucrative because they already have money — other people’s money deposited at the bank. They pay those people something like 2% annual interest while earning about 120% interest.
Feedback, Comments, Corrections, Suggestions. We welcome your feedback on how to improve this report. As time permits, we will review your submissions and make changes accordingly and/or list your comments here. Please let us know if it’s okay to use your name (first name last initial) and if you’d like a link to your blog or website.
- Shop Around. “I work as a consultant in the banking industry and one of my key area of focus right now is the payday lending industry. Banks are starting to realize the profitability of small-dollar, short term lending build on a deferred presentment model (e.g. payday lending). The good news for consumers is that they’re offering products at rates roughly half of what the payday lending currently is. As more banks enter this market and with the incoming administration, I predict pricing is going to become even more competitive. If a reader is going to go down the payday lending road, I would encourage them to check what products their bank or credit union may offer before turning to a payday lender. US Bank, Wells Fargo, Fifth Third, and many credit unions are now offering short-term, small dollar loans that are paid with the next direct deposit to an account. Just as a comparison in costs, US Bank charges a fee of $10 per $100 borrowed. The average in the payday loan industry is $17 (although this varies widely by state). Unlike many of the payday lenders, most of the banks will also try to work with the consumer to try to prevent a cycle of dependency on the product.” Stephanie R., 23 November 2008
Thanks. We want to thank NationalPayday.com for helping to fund our research into legitimate and well established Payday Loan and Cash Advance lending institutions.