Credit vs Payday Loans

The essential characteristics of payday loan transactions are different than most traditional forms of credit. When a consumer makes a repayment on a payday loan there are two factors to consider. One must consider the relatively large sum of money due in one lump sum. Generally, the entire principal of the payday loan is repayable within a two week period. The second factor to consider is the failure to make payment. The consumer may believe that failure to make repayment could have dire consequences. Many payday lenders will threaten you with prosecution for failure to honor a check. Unfortunately, repayment of the loan in one lump sum may result to the consumer having no funds to pay for essentials.

It is necessary to note that payday loan consumers are encouraged by the lenders to let the payday loans continuously roll over rather than repaying them. Such characteristics of payday loans are very different from typical forms of credit. Generally, traditional credit has a series of regular payments.

The payments are determined to be affordable by the creditor through underwriting. Other forms of credit like utility bills are inherently different from traditional credit. P ayday loans and rent to own transactions which may include information about the payment, or non-payment of these loans are irrelevant and not predictive of the consumer’s willingness to make regular payments on extensions of credit which have been underwritten to determine affordability. For such consumers, payday loans offer a valuable short term financial alternative.