Not lots of profit in loan lending

The claims from critics could lead people to think that a loan or payday loan lender makes piles of money. The typical short term loan lender isn’t really like that at all. The typical payday advance lender actually does not make a lot over costs. Loans aren’t as profitable as one might think. Slim are the profit margins for lenders. 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. Article resource – Cash advance lenders do not make huge gains by Personal Money Store.

Cash advance hard to make cash off of

The high fees lead numerous to speculate about lenders. They believe lenders are making a lot. This is not necessarily the case. The Financial Services of America is a business organization that has lots of financial service providers that are on the member list. The auditing firm Ernst and Young did a study of the payday advance lenders that are members. The Ernst and Young study found that for each $15.26 in fee revenue, only $1.22 was really realized as profit, which is a profit of less than 10 percent. The fee is $15 to $20 for the loans between $300 and $400 which is average for a cash lender.

Par for the course

The payday lending industry has been, for years, studied by many. A lot of them have found a comparable theme. A Fordham Law Journal study by Aaron Huckstep found that the profit margin among the personal loan companies surveyed was less than 8 percent. Other studies of profitability put the profits of the largest of payday loan lenders (for instance Advance America, EZCORP and QC Holdings) at 10 percent. A profit of merely 10 percent would certainly not support the surmised stereotype of payday store operators making money hand over fist, like vultures picking clean the bleaching bones of the poor.

Simple economics

Some states impose caps on fees. Rate caps are price ceilings. In order to break even or turn a modest profit, lenders have to come close to if not charge right at the cap. Lenders are only able to operate by charging the legal maximum with a profit of only $1 for every $10 fee. Personal Money Store has a payday lending report where you are able to find more facts and statistics.