Why Do Banks Hate The Payday Loan Companies So Much?

by : Adrian Adams

Payday loan companies are thought of as the bottom feeders of the banking industry. Many people believe that these companies just take advantage of low income families and hurt them more than they help them. The rates of payday loan companies seem high, because they are giving a very short term loan, which is small and usually not very risky for the company.

However, if you were to seek out a loan from a payday company in your local area, you will see that they have to make enough money to pay their own bills. These companies have to pay their employees, rent or mortgage, and other fees to conduct business. All of these things add up, so they have to make enough money to stay in business. Also if you were to compare a payday loan company's rate to a credit card, you would see that they are similar and in some cases lower. The payday loan industry also has a hard time, because the banking industry hates them.

Banks hate the payday loan companies so much, because these companies are taking money out of the banks' pockets. Banks only care about their bottom line. They do not care about the people that they service. In fact banks will sometimes allow people to get themselves in too deep, because they know they can get more money out of them.

A bank will give away a free checking account, because they know there is a good chance someone will slip up and bounce a check. Then the bank will get to charge almost $30 for an overdraft fee. A payday loan will allow someone to get a small loan, from $150 - $500 usually, to help pay for an emergency expense. This really cuts down on the amount of overdraft fees that a bank will be able to collect on their customers.

Banks also hate payday loan companies so much, because banks can not get as many people to sign up for long term loans. Many times a person just needs a small loan to get them through a tough time, but they get suckered into a larger loan from a bank. Banks usually will not give a loan less than $1000; so many times people will have to get a larger loan than they would have if a smaller amount would have been available.

Banks also usually require some type of collateral, like a house or a car, to receive a loan. However payday loan companies will give these small loans as long as you have a bank account, steady employment, and they will only loan you 25% of the total amount of your paycheck, so it is harder to get in big debt with a payday loan company.