Payday loan companies offer loans quickly and don't check or report to credit bureaus. They offer privacy, convenience, and speed, and now the middle class is starting to use them. They are turning to payday loan companies more and more to cover unexpected cash flow problems that need to be fixed quickly and quietly.
At least one payday loan company recently said that 30% of its customers came from the middle class. These people, who have great credit, now choose payday loans to keep their credit scores high. If you miss a payment on your credit card, the company may raise your APR to a crippling 30 percent or even more. When this is reported to credit bureaus, the credit score drops almost immediately. Then, when the information is shared with all the other credit agencies and then with all the other credit card companies, they all raise the APR and minimum payments to rates that are almost as high. A payday loan starts to look like a cheap way to avoid missing that one payment.
People from the middle class who know a lot about credit and have good credit scores know how important it is to never be late with a credit card payment.
Think about this couple from the middle class who might live near you. They've always worked hard and paid their credit card bills on time. They never had to even think about getting a payday loan. Now, they just signed a new loan with their bank to pay off their old mortgage. They have great credit, but they need a new loan to pay for their children's college. Since interest rates are still low, now is the time to cash in some of your hard-earned home equity and pay off your credit cards.
The bank's mortgage loan officer told them that, for the next 60 days, they shouldn't take out any new loans, open any new accounts, or do anything else that could lead to another credit check. That could hurt their credit score, which could make it hard for them to get the loan or interest rate they need. That could mean getting tens or even hundreds of thousands of dollars less in cash back.
The next payment on our couple's Visa is due on the 26th, but neither of them gets paid until the 30th, so they don't have the money in their account yet. They only need the money for a week, and it's less than $300. If they don't pay on time, the interest rates on ALL of their credit cards could easily go through the roof. If they have ten credit card accounts and make just one late payment for the first time, all ten accounts may suddenly go to default level interest and minimum payment levels. As they leave the bank, fear comes over them.
They think about getting a payday loan for the first time. They can easily find a payday loan site on Google. They don't even have to go to that awful payday loan shop down the street. With a secret payday loan, you could pay for that tomorrow. It's better to pay $25 to $100 in interest than to lose $10,000 to $100,000. And payday loans that don't check your credit don't show up on your credit report. Sometimes it's more important to have privacy and be on time.
The couple from the middle class just played the system, and it paid off.
