Tuesday, December 11, 2012

Bigger Isn't Better When It Comes to Payday Loans

The idea that "bigger is better" permeates many aspects of American society; from cars to homes, larger items are often considered more high-end and desirable. While a roomy home or spacious car may allow for a more luxurious lifestyle, the bigger financial strain that comes along with such luxuries is hardly "better." Payday loan lenders understand that bigger isn't better when it comes to debt.

If posed with a question about the best ways to secure financial health, most would agree that reducing debt is the first step that needs to be taken. However, many people still borrow excessively despite this knowledge. The contradicting desires of wanting the biggest and the best and also wanting to be debt free plague many Americans. A solution lies in prioritization. Is the desired item worth the big debt that comes with it?
From national debt to individual debt, Americans tend to borrow-a lot. Excessive borrowing may stem from the idea that bigger is better, as people strive to have the biggest and best of everything, even if they can't actually afford it. This mentality may have been a primary motivator behind the housing market crash of 2008. Many people overextended their resources, taking out huge loans to finance a mortgage that they realistically could not possibly afford. While the banks have some culpability in this, the individual borrower could have foreseen the likelihood of default if he/she realistically analyzed his/her budget. Many people borrow with the mentality that they will, in the future, be able to afford repayment, instead of considering what they can actually afford at present; such an approach to taking out credit is dangerous, as it is based on a lot of 'what-ifs' that may or may not come true.

Payday loan lenders prefer not to play the 'what if' game and, as such, all loans are granted based on one's present income. If an individual's income does not support repayment, a loan will not be lent. This keeps the borrower from taking out more money than he/she can quickly pay back. It also helps to protect the borrower against the accumulation of interest and fees, as the loan can theoretically be repaid with the next paycheck, accruing only a minimal amount of fees. If payday loans were granted in larger amounts, such a payoff would not be as feasible and borrowers would be faced with a larger pile of debt.

Payday loan lenders know that big debts come with big consequences. In an attempt to make their services more manageable, lenders offer small loans of up to $1,000 to cover life's unexpected expenses. While some may perceive the relatively low dollar amount of these loans as inconvenient, it is actually a security measure installed by the loan lender that protects the borrower from accumulating more debt than he/she can realistically payoff. In a sense, payday loan lenders employ these restrictions to safeguard not only their investment but the borrower's bank account. By adhering to a small-loan philosophy, lenders are able to help those in need without contributing to an insurmountable mountain of debt.

When it comes to loans and debt, bigger isn't better-bigger is far worse. Pushing aside the bigger is better mentality may help individuals avoid over-borrowing; in turn, borrowers will have more financial security and a bigger bank account, which is always better.

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