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Payday Loans And the Un-banked

Who are the un-banked? The un-banked refers to families who have no financial assets at all. Financial assets refer to bank accounts, retirement accounts, life insurance, and other similar assets. In other words, the un-banked are the poor and the ethnic minorities. They are not part of what economists refer to as the financial mainstream. Few financial services, such as credit cards and home equity lines of credit, are available to them. For who will be willing to extend money to a poor man? Thus, they cannot avail of the conveniences, security, and opportunities of wealth building of such financial mainstream.

Payday loans, however, provide the un-banked the chance to join this financial mainstream. From one point of view, payday lenders are pushing the poor into more debt. That is, a person facing financial problems may be forced to borrow another payday loan to pay off the first loan, until this person reaches a point of having five or more loans. But from another point of view, if such person does not take a payday loan, he remains a part of the marginalized section of the financial society. With a payday loan, a person is offered the opportunity to improve his credit history. No other financial service is available to him. If the money he loaned is used wisely (and no one should assume that he will surely waste it), then he short-term liquidity he enjoyed out of the payday loan can give them the break he needs to improve his finances and establish a positive credit history.

Some critics may comment that the people who take out payday loans use the money for frivolous purposes. Between paying an electric bill and buying Christmas presents, which would be more important to you? People will give different answers. You may be very practical and say that the electric bill is vital and you can postpone the buying of the gifts. But in certain family situations, having those Christmas gifts has more depth and significance. Thus, no one can really state with 100% assurance that the purpose of the payday loan is frivolous. Such judgment is solely between the borrower and the lender. Each individual situation is different from others.

The payday loan is clearly a financial innovation to meet the unique financial needs and situation of the present times. It particularly serves the un-banked sector of the society. Because without the payday loan lenders, this group of people will be left at the mercy of loan sharks. While borrowers of payday loans have the protection of bankruptcy, loan sharks resort to violence and threats.

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