Why Payday Loan Lenders Thrive and Borrowers Become Poorer

In the United States, payday loan lenders can charge up to more than 700% in annual percentage rate (APR). While in the United Kingdom, it is limitless. There are lenders of payday loans in this country that bill 4000% APR. That is how the middle and low average salaried-worker is bled and dried by loan sharks. They thrive and enjoy good business while the borrowers are becoming poorer by the day.

But it is a surprise that despite this high cost of financing that they are charging, many are still patronizing this unorthodox way of lending. Their tools to success are faster approval and convenient services. Who can resist a loan that will be electronically credited within an hour after it was filed without much effort and requirements?

Why lenders of payday loans prosper

Profit is always the motive behind a business. And this is only justified for who will risk losing money without a promise of gaining some. Direct lenders of payday loans are no different. They take the danger of losing their capital of course for a profit. And the margin of income is not negligible but very significant. It is the highest that the lending industry can offer. In the U.S. it can reach as high as 600% while in the UK it can plummet to high heavens-no limits.

If this is the incentive to gain, there is no doubt that the players will be competitive in their services. This can be noted on the promotional strategies that lenders are posting on their websites. Their banner ads will tell it all that competition is very alive. What is going on is only a valid testimony that the business of fast payday loans is really a thriving venture on the Web.

Just to give you a vivid example of how a lender of bad credit payday loan is making a lot of money is a $25 interest for a 15day payday loan on a capital of $100. This is simply equals to 50% interest in one month or 600% in one year. If you are familiar with car loans, the prevailing market rate is around 7% per year. Imagine the wide disparity between the two rates? It’s really mind boggling but there are takers of the loan. And they are not only few but so many.

The marketing strategy behind their success is on the services that they render; precision and timing. We are all amazed and go for something instant because we are living in a fast-pace society. Time is very precious and we are always on the go. If the service is very satisfactory, we don’t care about its price. That is the trend today and this is link to the advances in technology.

Why borrowers are left with lesser cash

If the lenders are gaining big money, it is the opposite on the borrowers’ perspective who are paying out that cash. From the looks of it, the scale is not balanced and it tilts heavily in favor of the lenders. Both are justifying this unequal play field by what they deliver and the other by what they receive. The very costly service billed as interest is the one that makes the wide disparity between the two.