What Is A Payday Loan?

The Truth About These Loans

So many news agencies and other public sources have had some pretty harsh things to say about payday loan companies, but as time goes on and consumer awareness has awakened, more and more people are realizing how useful a payday loan can be.

But what is a payday loan anyway?

Payday loans started in the 1990's by individual lenders localized in private neighborhoods as a way to help residents pay debt using a job as a secured source. For a time they became an extension of pawn shops, which is where the negative stigma that surrounds this class of loans originates. Because the clientele is high-risk by nature, these shops would need to charge relatively higher fees to make up for the unusually high default / non-payment rates by other clients, so the image of “loan sharking” was projected. In truth, payday loan companies did not make a lot of money in the beginning – it wasn't until payday loans became popular that the venture became a viable business opportunity.

Since banks and credit unions wouldn't touch this short-term type of loan because of the risk associated with the people applying, a whole new class of lenders began to emerge. Payday lenders – the very same that started in local neighborhoods and shops – began to grow in both popularity and success, and as people continued to learn about payday lending they began to make smarter financial decisions. This led to lower default rates, which in turn led to lower payday loan prices, and that brings us to today. Payday loans are now more affordable than ever, and you can even get them online.