Payday loans bad or good?

I don’t think there are many things that get a worse reputation than payday loans. Self-righteous politicians want them outlawed. Banks won’t give them because they think they are dirty lending. And many people think they are predatory loans and hurt people. But are payday loans good or bad?

The idea of payday loans by many people is that they are some kind of new thing to take advantage of poor people.

And there may be some truth to this. But it isn’t the whole story.

Payday loans can save you.

Did you know there was a payday loan in a movie from the 1940s? It’s true. In the movie the Glen Miller Story James Stewart goes to a pawn broker several times to pawn his trumpet. These pawn loans were really the first type of payday loan. They have been around for a long time. You would take a guitar, a wedding ring or some other valuable and pawn it. The pawn shop would give you a few hundred dollars for a thousand dollar ring. Then when you paid back the few hundred dollars, plus a fee, you got your ring or guitar back. If you didn’t pay they kept it. A lot of people didn’t pay.

Now what do you think the interest rate was on that type of loan? The truth is it would be much higher than it is today.

If you grew up in the seventies, or if you have ever seen the movie Rocky you saw another type of payday loan. This was made from a loan shark. You borrowed Two hundred dollars on Monday and paid the loan shark back three hundred dollars on Friday. If you didn’t pay Rocky would break your thumb.

I have never heard of a payday lender breaking someone’s thumb!

The truth is that payday loans are a much better way to get out of a financial jam then what used to happen fifty years ago.

Let’s run through a little scenario:

Suppose you have gotten a decent job after a few years of not making much money. You are finally starting to get ahead when your wife gets pregnant. That’s a little setback right? But you’ve got a good job and now you are starting to make progress. You might still have bad credit but you are getting out of the hole.

Then your car breaks down. You need six hundred dollars to fix your car and you know rent is due and you only have one hundred dollars left this week. You can either go to a payday loan place or borrow five hundred to get your car fixed, or you can lose your job.

I ask all of those rich politicians one simple question.

Which is the better option?

Most of the people who are against payday loans have never needed one. And maybe they never will. That’s great! But sometimes when we are young people make bad decisions. God help us we aren’t all perfect. And sometimes, even when we are middle aged or a little older we go through a bad spot financially.  Have you ever noticed that the politicians never have an answer for how you are supposed to get out of that jam?

Recently new regulations have been passed to clamp down on some of the payday loan abusers. And that’s a good thing. But I’m afraid that like everything else the politicians are going to screw it up. They already have in some states. When the payday lenders are put out of business who do you think people are going to borrow from? They are going back to the pawn shops, and when that isn’t an option they are going back to the loan sharks.

I think I’d rather get a payday loan!