The Controversy Over Capping Interest Rates

Payday loans are known for their extremely high interest rates.  This has pushed many states who still have payday lending legal, like Wisconsin, to cap their interest rate.  By capping the interest rate, the APR that one is charged on the payday loan does not reach unrealistic percentages such as 300 and 400 percent.  Most people think that capping the interest rate is a good enough solution to payday lending but others are not convinced.  Even with a cap on a payday lending interest rate, the cycle of debt continues.  By capping the interest rates, payday lenders may be more inclined to charge higher fees or make the process of obtaining a payday loan more difficult for the people who are in immense need of an immediate payday lending loan.  Those borrowers who are desperately seeking funds are more likely to take out money from a dangerous and unreliable source such as a loan shark rather than waiting around for what used to be a simple and safe way to take out credit on a minute's notice.  People who take out these types of loans are normally people who have bad credit and are unable to obtain credit through traditional sources.  If the government puts tight regulations on payday loans then it will be nearly impossible for these credit seekers to find accessible credit for their unexpected expenses. It is undeniable that the payday lending industry has flaws but restrictions like interest rate capping and the outlawing of payday loans affect many reliable payday loan users who need these non traditional short term loans.  In the meantime, each state has begun to either eliminate payday lending entirely or put tight restrictions on how lenders are able to operate.  One of the most important factors should be the education of borrowers. With borrower knowledge, they are able to determine legal versus illegal sources of payday loan lenders, avoid being involved in part of a payday lending scam or falling into a vicious cycle of debt.

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