Payday Lenders Have a Reason to Increase Rates
Payday Lenders Have a Reason to Increase Rates
Wonga, a payday lender from Britain has made public that they will be expanding their interest lending to small establishments. Though some consumer groups have been opposed to the gesture no one can say for sure that the move will be hazardous to small companies.
Paying interest just to borrow cash is an idea many people will be hesitant to do. Consumers and establishments are willing to pay rates lower than the charges Wonga is offering. A zero interest rate will be very appealing for everyone. However, lenders such as Wonga charge these high interest rates to prevent bad debt expenses.
When payday shops lend money to individuals who may be unlikely to pay off their loans they have to consider the chances that the borrowers may not be able to pay back what they owe. If you think about it is practical for payday lenders to increase their rates for risky borrowers because if they fail to pay the payday shop will suffer. Most of the small companies that apply for a loan in Wonga have high default rates for their loans. The small companies will have to borrow money because if they do not they will die off anyway.
If the small businesses are not allowed to borrow money, their owners will apply for personal loans anyway and will be signing in their business property in the contract; basically it is the same thing.
Government policies should be centered on protecting consumers from negative forces in the environment, not trying to block payday lending to small companies. High interest loans are not negative forces, small businesses do not harm the environment and they do not usually contribute to the worse kinds of pollution. They only belong to individuals who want to engage in the industry.
Preventing lending to these establishments is like killing the dreams of their owners. Also, the prevention of lending to the businesses will be expensive for the government because it would require them to enforce bans which mean more money to spend on forces.
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Filed under: Loans • payday loans • Personal Finance • personal loans
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