Dec
22
Should Payday Loans Be Capped?
December 22, 2009 |
Many Australians continue to rely on payday and other short term loans to meet their financial requirements. They would rather obtain loans from these payday lenders instead of from the traditional banks and credit unions due to the convenience involved, fast approval and the absence of credit checks. And for this, short term loans remain to be in great demand in the present day and no doubt even into the future.
But as competition in the payday lending industry in Australia is very stiff today, there is a proposal by some legislators to let the national government have control over consumer credit. Their main reason is that if consumer credit becomes centralized, more sectors will benefit from it. They say that with government control instead of the usual control by states and principals, the banks will gain incentives to allow them to offer small loans at competitive rates and the consumers for their part will be protected from fraudulent lending practices.
In line with the proposal for centralized consumer credit regulation, caps on interest rates are also being considered. This is an effort to make low cost financial products such as short term payday and cash advance loans accessible to more consumers especially those with low income. But not everyone is happy over this regulatory tool. In fact, experts fear implementing an interest cap may have a negative effect on the part of consumers and the payday lenders as well.
The concern over interest caps is it would limit the availability of short term loans to more consumers. This is seen as a possible outcome when lending companies cease their operations all because of the unfair rate caps. When this happens, payday loans will not only become less available but will be more expensive to avail as well. In such case, consumers will be left with no choice but turn to loan sharks and other fraudulent options. On the part of lending companies, some may be forced to close shop due to low profits owing to the caps.
People with low income perhaps would welcome interest caps if and only if the short term lenders remain in business to provide them a wide choice in obtaining short term loans. With the speed and convenience presented to consumers by these small lending companies unmatched by traditional banks, people with poor credit ratings will definitely continue to patronize them going forward.
With so many uncertainties today in our midst, people can’t be blamed if they want to take advantage of payday loans to make both ends meet. Not only do these loans provide them with fast cash in less than an hour after accomplishing all the application requirements but these instant loans are also more attractive to them due to the absence of credit checks. Most borrowers these days avoid loaning from banks because of their poor credit history and the lack of collateral to use.
What about you, would you prefer caps on loan interest rates? Or it does not matter for you whether a cap is imposed or not as long as you have many choices when it comes to lending companies from where to avail of payday loans?
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