There's a lot of negative talk in the personal space about pay day loans. In general this talk is justified as many people get trapped in loans with high interest rates. The rates are so high that sometimes people can only pay the interest on the loans. They can't pay the principle and get themselves out of the loan.
It is with this thought in mind that I thought, "Why not open up a pay day loan company of my own?" Excusing the ethics of such a thing for a second, wouldn't it seem like a fantastic way to get rich quick and easy. There's the rub. It turns out that it's not quite that easy. If it were really easy, there would be tons of entrepreneurs entering the field and undercutting them by a few percentage points to grab all the business for themselves.
Of course that doesn't happen because numerous payday loan companies exist still charging tremendously high rates. I believe they need to charge these rates because a large number of their clients never repay their debt or interest at all. It may sound like conjecture on my part and in some ways it is. However, I've had a little experience lending money on Prosper. From that experience, it is necessary to charge an outstandingly high price to some people with lower grades. I have lost money when I lent money to people of grade D or E at 29%. I can't imagine the rate I'd have to charge to make money on what Prosper deems high risk or no credit borrowers. Well I can, and it's about the rate that payday loans charge.
I can't recommend that people get payday loans. When you compare payday loans, it's too easy to get trapped into a hole you can't dig out of. Still, I think that payday loan companies aren't nearly as predatory as they are made out to be. I think they are just charging what needs to be charged. If people were more responsible they wouldn't need to charge such high rates. It's up to the consumer to educate themselves.
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