Can't Wait?
By Taylor Wells
What do Advance America, Check 'n Go, and Allied Cash Advance have in common?
Claiming easy credit, these loan companies offer a no-hassle solution for an individual who can't wait until payday by lending advances on his/her paycheck. Incredibly, there are approximately 12,000 of these payday loan offices nationwide with approximately 240 in the state of Washington and Oregon alone. These payday advance companies offer loans anywhere from $100 to $500 and in some States up to $1,000. The interest charged ranges from 15% to 20% per $100 (or $15 to $20 per $100). In other words, if an individual borrowed $200 at a rate of 15%, he/she would be charged an additional $30. This amount is due on the individual's next payday. If the customer continued to receive advances on his/her paydays over a year's time, the annual percentage rate would be 390.00%, however the majority of individuals borrowing from such places as Advance America only do one advance in a years time.
The application process for a payday advance is simple and easy. Generally, the only
requirements for receiving an advance on a paycheck are a checking account (with last statements), a most recent paycheck stub (or verification of other income), and valid identification (social security, and/or driving license). Next, the individual writes a check for the loan amount plus interest, and then when the individuals paycheck has come in, the payday loan office deposits the check. Its fast and easy. Cash in minutes. No hassle.
In 2000, the University of Michigan Survey Research Center conducted a study on payday advance customers. According to the study, the average payday advance customer's income ranged from $25,000 to $49,999 with two-thirds of these individuals under 45 years old . Furthermore, the main reason for consumers to acquire a payday loan was to avoid fees for returned checks and late payments. Although, according to the study, payday advance companies often promoted their product as being less expensive than fees for returned checks or late payments, a large percentage of customers say that payday advances are more costly (than the fees). In addition, almost two-thirds also said that they used the advances for an emergency (unplanned expense, or temporary income reduction), and 34.3% said it was for “discretionary” uses. The study went on to say, that customers said that in the past 12 months, 24.1% of them made a late payment, and almost half of the 24.1% made more then two late payments in the past 12 months. So with the majority of individuals borrowing $200-$300 the question is raised, why not withdraw from his/her bank account? The answer to that question is that these borrowers probably have very limited liquid assets. Even though, 90% of payday advancers have credit cards, this source may not have been available because they have already borrowed heavily against their limits.
The largest advance payday company, Advance America, has approximately 2,600 offices in the U.S.A, with approximately 100 offices in Washington, and around 55 in Oregon. Jamie Fulmer, Director of Investor Relations for Advance America claimed that their customers are “hard- working adults”, who need money for either unexpected expenses and/or discretionary uses. He made it clear however, that people get the wrong idea when they think that the majority of people using payday loans use it to purchase new consumer products.
In summary, it would be prudent, since most payday customers with incomes ranging from $25,000 to $49,999 are only borrowing $200 to $300 to forgo some of their current spending, therefore, saving a small amount of money each month to cover an unexpected expense or an emergency in the future. An example of forgoing spending would be avoiding a high car payment or purchasing the latest electronics. If however the individual makes it a habit of frequently returning to a payday lender for funds whenever he/she has an unexpected expense, that individual is on a path that is sure to lead to financial instability. Similarly, it would behoove individuals to clear any credit card debt (with compounding interest monthly). As a last resort, the credit card can be utilized for an unexpected expense.
Can't wait?
For payday advance customers, the key to being free from that type of mentality, is to consistently plan, budget, and save.
(This article was published in The Messenger, November Edition)
