If you do not fancy asking your friends about some amount of money to ward off some unforeseen financial exigencies, then the only hope is the payday loans. These high interest and small amount loans are best suited to provide you the much needed respite for meeting immediate money needs. With growing criticism for their tendency to push the people into a never ending debt spiral, the Arizona State of US has moved legislation capping the annual rate of interest at 36 percent.
This measure has prompted many payday loan stores to seriously consider closing their shops. They used to charge nearly ten times the current cap rate applied by the government. The stores contend that this is a huge reduction and an indirect way of pushing them out of this business. High operating costs, greater risks of default and many other considerations which made these stores charge higher amounts will simply result in innumerable losses, not to mention profitability. Some analysts believe that it will have immense repercussions.
For one, a natural question is: from where will the people meet their instant cash requirements since the banks do not lend small amounts and other lending options take too much time. This will create a big need gap. Secondly, if the payday loan stores do not shut down, they will certainly consider changing their business fundamentals. More strict credit checks will be conducted leading to more cases of rejection. But this will result in the needy people being not getting the due benefits. The stores may begin to charge some fees upfront to cover for some their risk. They might also start giving the loans for more than one pay period. This will enable them to earn more interest. Despite all these available options, there is no denying the fact that the profitability will be hit for sure.
People who support the decision of the government argue that since the payday lending is there, people are hesitant to look into other ways of making those extra small amounts. They contend that the cash advance loan companies have created this misconception that they are the best avenues for meeting their instant cash requirements. They believe the people are being misled by the advertisements that they are lenders of last resort and are preventing the people from being more responsible. Only time will tell what have been the real ramifications of this government decision.
