Critics talk about the cash advance and payday advance industry in a way that makes it seem profits are astronomical. There isn’t really a lot of fact in that idea about short term installment loan lenders. The average cash advance lender does not realize a lot of gains from lending. The profit margins are fairly slim. It is a struggle for survival when lenders, with already slim profit margins, also have to contend with aggressive legislation that makes it hard for them to earn a living.
Trying for making more money with cash loan
Many think that a lot of profit is earned with such ridiculous fees. This isn’t necessarily the case. There was a study done by the auditing firm Ernst and Young of all the payday advance lenders that belong to the Financial Service Centers of The United States, a business organization of financial service providers. Less than 10 percent is earned when the revenue off of each $15.26 was only $1.22 on average, said the Ernst and Young Study. Money lenders generally have loans between $300 and $400. The fees on these are $15 to $20 which is much smaller.
Getting par
Studies have been done on the payday lending industry for years. Something was discovered. Something was common among them all. Aaron Huckstep did a Fordham Law Journal study. Personal loan companies only make a profit of about 8 percent based on this survey. Other studies of profitability put the profits of the largest of payday loan lenders (for instance Advance The United States, EZCORP and QC Holdings) at 10 percent. There is a stereotype of payday store operators making a ton of cash which is clearly not true with the 10 percent shown to be made.
Simple economics
Some states impose caps on fees. Rate caps mean the price can’t go higher. Lenders have to make sure the right cap is being charged in order to break even or make just a little money. Since a $15 fee means just more than $1 of profit, a lender has to charge the lawful maximum just to keep their doors open. You can read more facts and statistics in the payday lending report on Personal Money Store.
