Payday Loans - The high cost means more profits?

If a company earns too much or too little in May not only be analyzed by multiplying the tax is charged on the amount of products they sell. The costs of production, distribution, etc. should also be taken into account. The same applies in the analysis of payday loan lenders profit ...

Each company wants to make a profit and does not act in a trade offer of money and the goodness of his heart. However, lenders are concerned about low-risk customers and regulate the provision of personal loans with good process of credit check to approve the charge or charge lower interest. Therefore, there must be a reason for the high rates charged by payday loan lenders.

What type of customer requires Payday Loans?

This issue is important, because the address that niche lenders with Payday Loans is very specific gap in the financial market that is not filled by other financial products. Payday loans are designed to help those in an emergency and need funds to cope. These short-term loans, to small quantities and very expensive, as explained.

The problem is that those who need financial assistance for such emergencies, of course, are not the savings they need to solve it. And if it is possible that some unforeseen situation that in May because of the lack of savings, it is likely that the search for a payday loan for such purposes is no capacity for savings and, consequently, low incomes or high costs (or more commonly, both).

The risks associated with the transaction

So what should be expected from these clients? The truth is that market analysis showed a high rate of default. Thus, simple mathematical rules that high school fees are needed to ensure any kind of profit. If I charge $ 1 per $ 100 (12% APR) I would get $ 1,000 profit for every 100 customers borrow $ 1,000. But if 10% of borrowers default on the loan, I would be losing $ 9000.

Instead, the Payday loan lenders can charge $ 10 to $ 100. With the example above, 10% default rate, which is not useful. Yet Internet Payday loan lenders are more clients, charge more taxes and use different methods to reduce the default rate to a minimum. They do what every company is to minimize loses and maximize revenues.

Payday Loan Lenders are not the devil

Now that we have demonized payday loan lenders, we must explain how payday loans are used properly, because if there is a devil and not a creditor, is the abuse of Payday Loans.