Not a lot of profit in cash advance lending

The way critics talk about the cash loan and payday loan industry, one would think all lenders are wealthy. Picture them there; sitting atop mountains of money. That is not really true at all. Short term loan lenders aren’t what they’re said to be. The typical payday advance lender actually doesn’t make a lot over costs. Loans aren’t as profitable as one might think. 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. Resource for this article – Cash advance lenders don’t make huge gains by Personal Money Store.

Cash advance hard for making money off of

Many think that a lot of profit is earned with such ridiculous fees. This isn’t always true. The auditing firm Ernst and Young did a study of all the payday loan lenders that were part of the Financial Service Centers of The United States. The Ernst and Young study found out that only $1.22 was made as profit off of each and every $15.26 in revenue. That means there is only a 10 percent earning. Money lenders usually have loans between $300 and $400. The fees on these are $15 to $20 which is much smaller.

Getting par

For years, people have studied payday lending. They wanted data on how it works. Something was discovered. Something was common among them all. A Fordham Law Journal study by Aaron Huckstep found that the profit margin among the personal loan companies surveyed was less than 8 percent. The largest personal loan companies, for instance Advance America, EZCORP and QC Holdings, only made about 10 percent based on other studies. Only 10 percent being made isn’t a lot. That shows how payday lenders are being stereotyped into being individuals just out to make some fast cash.

Easy as economics

A lot of states like to control things. This is done with a cap 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 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. Personal Cash Store has a payday lending report where you can discover more facts and statistics.