If you do some research on payday loan rates and laws you will find that most payday lenders charge upwards of 450% APR in most US states where payday loans are legal. Now that’s a very high rate on cash loans.

There are many reasons why payday loans are high interest rate loans but these are the two main reasons:

1. Payday loans are high-risk loans for the lenders so they have no choice but to keep the interest rates high to remain in business (FYI not all loans are returned, some don’t even payback the principal and this percentage can be as high as 20%), and

2. Since this is a lucrative business many normal personal loan lenders / brokers have become payday loan brokers thus increasing the interest rate as they act as third party / middleman / agents / brokers for direct loan lenders.

It is good that many normal financial lenders have become payday loan lenders, as it increases competition and it helps to reduce rates. But it has created another problem and that is of “one more jump in interest rates”.

How on earth are these payday loan brokers going to make money? Simple, by cutting a fee from the finance fee paid. And where does this fee come from? Of course it comes from the loan applicant.

To make money from the finance fee these broker-lenders have two choices:

1. Cut a fees as commission from the fees paid as finance fee for the payday loan (this is a small loss for the direct payday lenders), or

2. Charge a fee over and above the "real fee" of the loan offered by the direct lender. For example if the direct payday lender charges 350% APR, they will offer a loan at 450% APR. Once the loan is returned or paid back, they keep the difference and payback the remaining amount to the direct loan lender.

Since option 2 is a win-win situation for both the direct loan lenders and payday loan brokers this is mostly done in the lending industry. However this is not a great situation for loan seekers. Because for the same product they are paying a 100% APR or more for nothing. They can save some money if they take a loan directly from the direct loan lenders.

People who are regular cash loan seekers know this and therefore search and apply for a loan online from direct payday loan lenders only. No wonder it has 27,000+ searches in a month in Google in USA alone.

Some people think that its better to apply for a cash loan through a payday cash loan broker rather than direct payday lenders, because loan brokers can influence the lender to do no teletrack, no credit check and no fax of any documents. This assumption is wrong as its not the loan brokers who decide whether to approve a loan or not, its actually the direct lenders or financial institutions who evaluate an applicant’s application and approve or reject a loan.

There is nothing in the hands of the third party loan brokers. They are there just to do marketing and make money through the fees.

However, most direct lenders do not do traditional credit checks of the applicants. There is a technical reason for this. Most payday loan applicants have bad credit and are in the low to average income category (most of these people need payday loan – the rich people have many sources of income, why should they apply for a payday loan?). It’s a waste of resource and time to do a credit check of payday loan applicants – most will have a poor credit and not a single loan will be approved. However lenders do Teletrack to know the past payday loan history of the applicants. Most also do not ask to Fax any document as they have enough online tools / software / resources to know if the applicant is lying or has filled the correct information in the application. They ask to Fax applicants pay slip or any other document only in doubt.

Another advantage with the direct loan lenders is that they are state licensed brokers and are legally obliged to follow the state law from where they operate. Therefore there is little chance they will over-charge a loan. Direct payday lenders are mostly big companies and have an established brand and they are scared that one single mistake can doom their reputation and business. Therefore they are very careful in dealing with their clients. And their customer service is of top class.

Keeping the above points in mind it makes sense to apply a payday loan through direct payday lenders. It will save you money and unnecessary hassle.