Payday Loan Services in a Convenience Store - Research Paper Example

? OUTLINE FOR RESEARCH PROPOSAL Certification hip Submitted of Submission: Certification of Authorship: I hereby certify that I am the author of this document and that any assistance I received in its preparation is fully acknowledged and disclosed in the document. I have also cited all sources from which I obtained data, ideas, or words that are copied directly or paraphrased in the document. I used APA standards to credit all sources properly. I also certify that this paper was prepared by me for this purpose. Student's Signature: ________________________________________________ PAYDAY LOAN SERVICES IN A CONVENIENCE STORE Problem statement The writer will explore the feasibility of establishing a Payday loan service in Topeka, Kansas. The feasibility includes exploring options of locating the payday loan service in a convenience store that is accessible. The room will have a counter for disbursing funds and maintaining records. Research will include state and local requirements for establishing payday loan service as a sole proprietorship, competitors’ analysis for internal assessment for crafting payday loan service strategies, and a market analysis to study the lending rates and charges in relation to pay loan services in Kansas State. Introduction The writer is the owner/manager of Quick Stop & Go convenience store without gas services. The writer intends to add an additional service as Payday Loan using an extra space available in the store that is a single store not chain store. Above information clearly describes the purpose of accessing payday loan. Yet, there is a need to analyze in which terms payday loan will be helpful for the store as compared to other types of loans and to which extent it will be productive in increasing the profitability of store by efficiently utilizing idle assets of the store. As payday loans have become more popular in recent years. The important feature of the payday loan is that it is readily and easily accessible. Payday loans have many benefits as compared to the other loans. For payday loan, only proof of employment, bank account and income is required and paper work requirements are also very limited. Terms and conditions of payday loans are also fixed like other loans but the borrower can get flexibility according to its need. So, profitability can be increased by using loan according to current situations. Research questions 1. Who are the users of payday loans? 2. Do the payday loans solve their financial problems? 3. What is the eligibility for obtaining a payday loan? 4. Who are the competitors in the market? Purpose statement To promote access to diverse, healthy and comprehensive financial services for households in Kansas. This will be through offering cost-effective loan rates and innovative methods of loan applications for customer convenience. Literature Review What is a payday loan? Payday lending business will provide short terms loans for a maximum period of two weeks, to households who are in need of money or individuals that do not opt for other sources of credit.Caskey and John (2012), define a payday loan service as a loan gotten from a business that is not a bank. These businesses operate under different titles and take postdated checks as collateral. Hodson (2009) describes a payday loan as a short term borrowing where the borrower borrows money at a high interest rate. The borrower writes a postdated personal cheque in the month they wish to borrow including a fee in exchange for cash. The borrower does hold onto the cheques and cashes it on the agreed upon date. How pay day works The borrower visits a lending store and secures cash, which is due in full at the borrower’s next pay day. The borrower then writes a post dated cheque with the full amount including the fees. Upon maturity of the check, the borrower returns the loan and if he fails to, the lender redeems the cheque.The borrower incurs a bounced cheque fee from his bank plus the cost of the loan. The loan incurs additional fees and an increased interest rate for failure to pay (Schurter, 2012). The writer will have well laid down policies that govern mutual understanding between the business and the borrower, in that the borrower will pay the amount by the next pay day which will be after 14 days. Eligibility to qualify for the loan will be for persons with steady jobs and persons above the age of 18 years. This will be verified via pay stubs and bank statements. The process of loan involves the borrower securing a small cash loan pay, he then writes a postdated cheque which is a form of collateral to the business in the full amount plus loan fees to the business. When the cheque matures, the borrower returns to the business to pay the loan in person. Advantages of payday loans Research by Payday Loan (2013) supports the merits that payday loans offer to its users. This service allows people with little no credit to get credit of $700 and above in a day. Less bureaucracy in application as the applicant only needs to provide proof of employment and recent pay stubs. Payday loans does offer quick cash for any reason and less paperwork is involved in the application as the loan process takes half an hour. Many payday loan services have become innovative and have introduced online loan applications. The writer will use innovative methods like online payday lending. The borrowers will complete the loan application online, and then loan is transferred by direct deposit to the borrower’s account. The loan fee and repayment is withdrawn electronically from the borrower’s next payday. The business services will be advertised through leaflets, posters and signage. The maximum loan that will be offered is $500. Operating the payday loan service within legal requirements The writer intends to operate the payday lending business within the framework of Kansas regulatory Agencies for payday loans. The maximum loan amount will be $500 and maximum finance charges will be $15 per $100 loan. Payday loan business will be registered online for online transactions as a line of credit loan, where all the information relating to licensing and transactions will be available for our borrowers (Wilson, B. et al, 2009). Users of payday loans For individuals in need of quick cash, a payday loan is the convenient way to avoid asking loved ones for help or getting into a long-term debt. According to a recent study by PEW charitable trust, most payday loan borrowers are single or cohabiting, divorced, and in the age bracket between 25-44 years. Most users of payday loan borrow to cover ordinary living expenses and not unexpected emergencies over the course of the weeks (Schurter, 2012). Consumer focus (2012) conducted a study and revealed that the number of individuals using payday loans quadrupled since 2006 from 1.2 million people. The writer intends to help household to cope with trying times by making cash loans available to them. The loans will also be applied for the company website which will be secure, quick and confidential process. The procedures will be convenient for the customers as we will debit their payments of the payday loan from the customer’s account in accordance with the customer’s instructions. This will save our customers from making a trip to the bank to remit payments. The writer intends to make the customers view the business as a helping hand in times of need for our customers. Eligibility for obtaining a loan For one to be eligible for the loan, they must be of legal age, have regular employment and must have an active checking account. For more queries about the business services, the customers will refer to the frequently asked questions for more information on loan application from our website. The writer is aware of the Kansas state regulations on payday lending business, and in view of this the writer intends to operate within these regulations. Kansas law also prohibits lenders and their interest from having more than two loans outstanding at any point in time. Lenders are also not allowed to divide the loan into multiples so as to increase the fees (Caskey and John, 2012). The regulations on loan fees charges are as are follows; STATE MIN/MAX TERM MIN/MAX LOAN FEES AND FINANCE CHARGES STATUS OF LAWS Kansas 7-30 days $ 500 15% +administrative fees A borrower cannot have two loans outstanding to the same lender in any point in time and cannot make three borrowings within 30 days. The introduced law limits lender ability to collect from military borrowers as they are prevented from exposing the wages of military borrowers, and they cannot contact anybody in the chain of military command to demand collection. To make the loans affordable to our customers, the writer intends to charge loans that are pocket friendly to our customers. The number of loans taken will be limited to five per households annually, and customers who would have taken loans a maximum of five times in a year will be an indicator of financial difficulty. The loan charges will be as follows; The borrower will have the right to rescind the loan without cost not later than the end of the business day following the day the loan transaction is made. To rescind the loan, the customer shall inform the writer, the customer then shall return the cash amount of the principal of the loan transaction to the business and the business shall return any fees that have been collected related to the loan. Competitors in the market In Topeka, Kansas there are established businesses that are also dealing in payday loan services. This pose a threat to our business as these business are household names in this state. Their loan charging rates are listed below; LENDER APR (%) LOAN FEE($) MAXIMUM LOAN MINIMUM LOAN TERM CASH CENTRAL 391.07 15 500 7 days Check city 391.07 15 500 7 days Speedy cash 300 11.51 1,500 7 days Payday one 391.07 15 500 8 days Check ‘n go 391.07 15 500 14 days Areas for further research There is need for more regulations on payday loan services as some business are not licensed and operating illegally conning or defrauding households a lot of money. The state departments of financial institutions need to regulate payday loans. Many lenders have ignored usury limits and are charging higher interest rates than required by law (Schurter, 2012). There is need to regulate the pricing structure of many payday loan services as many are charging higher interest rates than required in their respective states. Further research is required on state regulations on payday loan services. Research also need to be carried out on alternative affordable credit from other lenders such as credit unions as some customers argue that payday loans interest rates are high. References Caskey, J. P., (2012), Payday Lending: New Research and the Big Question. Research Department, Federal Reserve Bank of Philadelphia. Working paper 10-32. Retrieved April 20, 2013, from, ClicknPayDay. (n.d). Retrieved April 20, 2013, from Hodson, M. (2009) .How Payday Loans Work. Journal on payday loans 36(1), 57-72, Retrieved April 20, 2013, from Kansas legislation research department, (2013). Legislator Briefing Book. Research on payday loans, 51(12), 41-49. Retrieved April 20, 2013, from Karlan, D. & Zinman, J. (2009) Expanding Credit Access: Using Randomized Supply Decisions to Estimate Impacts. Review of Financial Studies, 145(20), 58-59. Payday Loan (2013). Payday Loan Advantages Are Many. Instant payday loans blogs Retrieved April 20, 2013, from Read More