The ban has stipulations. Existing payday loan and auto title stores can renew their business license within the next six months, but must stay where they are location-wise. Birmingham is home to 93 payday loan companies at present, and city residents frequent these stores for quick cash in a financial hardship. Some government authorities believe that these loans are creating a city debt and causing difficulty to borrowers. Payday loans come with higher interest rates than a long-term bank loan might, and many government officials believe these triple-digit APRs are what is hurting their community.
Payday lenders beg to differ with state officials. While lenders don’t deny that their interest rates are high, they also believe that they are able to help men and women who do not have any other access to cash. Payday loan companies don’t check credit, so anyone who is in need of some money fast, but lacking good credit can rely on a payday loan. Banks often reject these individuals at first glance. The high interest rates act as a security barrier and motivator for the payday loan companies, who hope that the rates will help push these bad-credit borrowers to repay their money on time. Payday loans are only meant to last a few weeks, so the loan’s short lifespan allows for less time paying interest and a faster process.
These loans are also more convenient than your average bank loan. Online short term loans are the way of the future, and take only minutes to secure. Unlike banks, which require painstaking application processes, online payday loans usually only have a small digital form that requires some basic information. Almost everyone who applies for a payday loan is accepted.
The Birmingham city council believes that their payday loan ban will help them to clarify the role payday loans have in the city and determine how to deal with this industry. They hope to seek other alternatives while they observe the repercussions of the moratorium. There is a danger that Birmingham’s short term loan customers will turn to over-drafting credit cards or other financial dangers without the help of a paycheck advance. These fees can add up to much more than a payday loan interest rate.
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