Cash advance loans appeal to consumers because they are easy to obtain

The explosive growth of stores that offer cash advance loans has astonished legislators and consumer advocacy groups, who worry, with good reason, about the fact that consumers are lining up to borrow money at interest rates of up to 500% per year. While stores that offer quick cash loans numbered in the few thousands as recently as 1999, they now number more than 20,000. In some cities, there are multiple stores on a single city block, and despite the large number of businesses that offer them, there is no competition in offering these loans. Every store in a given city is charging the same rates as every other store.

The rates are not cheap. In exchange for borrowing a sum that ranges from $100 to $500 for two weeks, a consumer has to repay the loan plus a fee that ranges from $10-30 per $100 borrowed. If he or she cannot repay the loan after two weeks, the loan can usually be renewed for another two weeks, if the consumer pays the fee a second time. The short term of the loans often makes it difficult for consumers to repay, and many of them end up paying the fees over and over. Or they take out another loan from another store in order to repay the first one. And yet, despite the high prices, the businesses are successful and these lenders offer billions of dollars in cash advances each and every year.

If the loans are so expensive, why are the businesses so successful?

The answer can be summed up in one word - convenience. Taking out bank financing would save borrowers a lot of money, but bank financing and other, more formal, types of lending require some resources that many would-be borrowers do not have. The appeal of cash advances can be attributed to the typical requirements of the stores that offer them, which frequently require no more than the following:

• The borrower be an adult
• Have a current job that they have held for at least three months
• Have a checking account.
• Be a United States citizen.
• Have no other outstanding advances from that store (in some states, from any other store.)

That’s it. There is no credit check. Lenders aren’t looking to see your FICO score. They don’t care about other advances you have. They don’t care if you had a recent bankruptcy. They don’t care if you have paid your Visa bill late three times in the last six months.  If you meet the requirements above, they will almost certainly lend money to you, which is something that no bank will do with as little to go on as the minimum requirements that most cash advance stores require. It should be no surprise that these stores are successful; they will accept the business of just about anyone.

That business comes with a price, of course. That price is an average interest rate of 391% per year. The success of these stores indicates that convenience and ease of use is an important consideration in borrowing money.

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