Just curious... 90 day note vs. 'pay day loans'

:thatsracist:

Some of the people who use payday loans have credit so bad they can't even get a checking account, much less borrow money from a bank.

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So, the payday loan place mitigates bad risk by charging them really high rates. Got it.

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to the tune of 36% and $50 worth of "loan fees"

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So, the payday loan place mitigates bad risk by charging them really high rates. Got it.

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Essentially, yes. I used to know a guy who worked in one of those places and he explained that often the main problem was figuring out when (not if) a borrower would default so he would know how much he had to get up front to remain profitable, and noted that in that business it's a genuine surprise when someone is good for the loan. By his account they didn't generally make very much money despite the enormous rates and fees because just about everyone defaulted, it was just a matter of trying to predict when.

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By his account they didn't generally make very much money despite the enormous rates and fees because just about everyone defaulted, it was just a matter of trying to predict when.

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He was doing it wrong if he wasn't making money

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He was doing it wrong if he wasn't making money

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I know someone who is heavily invested in banking in LA, and he told me these places are no-brainers for loans if they're franchises with any mgmt experience at all, because they make it rain.

Location is probably important now more than ever though, because one drive down Government will show you how saturated an area can be with these places.

I've been out of the loan business for several years. I didn't work at one of these places but took applications from many customers that were balls deep in payday loans.

Here's how it worked back a few years.

Customer borrows $250 and leaves a post dated check for $400 for 30 days.

After 30 days, the customer could pay the interest and fees $150 and have another 30 days to pay the $400 (called renewing). This happens more than you think.

Basically a person has to only pay you interest for 2 months and you are in profitability and the rest is gravy.

As a previous poster noted, the key is determining when a customer would default so you could either get out or be many months in where it didn't matter.

I believe the Feds passed a law after I left the business no longer allowing renewals. In that case, the customer would just come in, pay $400 and reborrow the $250 so they could eat.

It's a vicious cycle and almost impossible for a low income person to get out of.

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So, the payday loan place mitigates bad risk by charging them really high rates. Got it.

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they are not mitigating risk, they are preying on stupid people. anyone who goes to a 'pay day loan' place is borderline retarded.