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which is why it is a good thing to stay away from payday lenders altogether. I also don't believe that 24% (and possibly 240%) would be high enough for those businesses to make a sufficient profit to cover their costs. Most of the people taking loans at payday loan companies have bad credit and some have even declared bankruptcies. In addition, customers may have multiple payday loans outstanding with different companies so they may be competing with the other companies to be the first in line to collect on their loan.

If payday loan companies were getting the cream of the crop as clients and the loans ran for longer periods of time (say 6 months, 1 year or 2 years) then there would be less administrative costs involved so that they could charge lower interest rates. If there was an automatic debit made when the worker had a direct deposit made then it might also be possible to make loans at a lower rate. Instead these businesses are making signature loans with no secured collateral to the riskiest prospects out there. The workers also may not be employed at their current employer or lived at their residence for a long period of time. Usually the only documentation that is required is one or two pay stubs and a bill with a street address. They are intended to be solutions to be used only in desperate situations or while the customer can obtain financing from more conventional means such as borrowing from a 401k account, bank or credit union.

These companies do not have the volume of business to charge lower rates like a bank or credit union can and their overhead chasing down delinquent and defaulted loans is much greater than those of banks or credit cards. They don't even have anything to foreclose against or repossess if it is a signature payday loan. While the interest rates are predatory it should also be noted that more serious financial harm could occur if you aren't able to obtain medical help, utilities may be shut off or a loved one (who contributes to the household) needs to be bailed out of jail.