A Short Lesson in Short Loans: Don't Just Do Something, Stand There! II

A Short Lesson in Short Loans: Don't Just Do Something, Stand There! II

For those who are knowledge impaired about things economic, here is a good explanation of why short term, high interest loans are often a good thing. And why knee-jerk political reactions are so often worse than the "crisis" they address.

Douglas Bandow: Politicians' interest in payday loans misguided

Moreover, to focus on the cost of payday loans misses the most important point. Critics of advance payday loans ignore the cost of the alternatives.

For some people it's not meeting an unexpected expense - a pressing car repair, bill, dental procedure, or medicine, perhaps. The result could be loss of work and income, increased costs, pain, and inconvenience, and more.

Another alternative is to rack up hefty late fees and interest charges by failing to pay a bill on time. Or by bouncing a check.

A Georgetown University study figured that taking out a $100 payday loan to pay a $50 credit card bill and $50 utility charge cost less than the late fees from failing to pay. The payday loan also won't damage a person's credit rating, making it more difficult to win affordable longer-term loans in the future.

People who need money also might find a more expensive alternative to raise funds. Like a pawn shop. Or a loan shark.

Given these alternatives, a National Taxpayers Union poll found that nine of 10 people considered advance payday loans a useful service.

But payday lending critics don't care about people's actual needs and don't believe that people are smart enough to decide what is in their best interest. Complains Julian Bond, chairman of the NAACP: payday lending is "threatening the livelihoods of hardworking families and stripping equity from entire communities."

Actually, what threatens "the livelihoods of hardworking families" are the money emergencies that payday loans help address. Eliminating the means of meeting financial challenges without addressing the financial challenges themselves would make people worse off.