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Payday loan stores are present in many different locations across the nation advertising financial relief for people that may not have any other options for obtaining the loan that they need.  Payday loan stores are one of the most controversial businesses of the last two decades, with supporters claiming that they provide an essential service that is needed by the lower income community and opponents claiming that the businesses prey on people that can least afford it.

Where Are Payday Loan Stores Located?

Payday loan stores can generally be found where the population is less affluent because here is where most of the people that seek their services can be found.  At first, many payday loan stores opened near military bases because the majority of the people in the area were living on low military wages.  A great deal of service members fell into an endless cycle of debt due to constantly receiving payday loans and a new law was passed prohibiting payday loan stores from giving a payday loan to members of the military.  This law does not stop the payday loan stores from giving a payday loan to any other member of the nation as long as they have a valid ID and can produce a paycheck stub. 

What Issues Are Associated With Payday Loan Stores?

The biggest issue associated with a payday loan is the interest rate that is charged for these short-term loans.  The interest rate associated with a bank loan or credit card is between 5% and 10% annually.  For people with low credit scores or a shaky credit history, the interest rate for a credit card may be as high as 28%.  The interest rate charged for a two week loan from a payday loan store averages between 400% and 800%.

It is estimated that an average person using a payday loan store averages more than 7 payday loans each year, with the majority of the payday loans occurring one after another.  This indicates to researchers that many of the people that rely on payday loans are unable to repay the original amount within the time period determined by the company and have to take out a subsequent payday loan, either from the same location or from a different company, to cover the charges for the last payday loan.  In this way, many payday loan recipients find themselves paying a great deal of money in fees to the company with very few options for getting out of the cycle.

Many experts agree that payday loans are not a good idea for a significant percentage of the population and that the interest rate is astronomically high for the services provided.  There are several states that are trying to pass legislation that caps interest rate for payday loans at a much lower interest rate, often as much as ten times less than what the payday loan stores are currently charging.  Payday loan companies are saying that an interest rate cap will put them out of business but legislators argue that no other company is charging such a high rate and they still manage to stay in business and make a profit with their products.  As the debate continues, it will be interesting to see which view is adopted as being the correct one.