The Fixed Cost Of Providing A Payday Loan
‘Predatory’ lending practices at the expense of consumer welfare seem to be a common occurrence in overseas payday lending industries.
This can be backed up by countless research and evidence from the thousands of critics that it attracts. Unfortunately this creates a negative stigma that, due to the fast-paced technological age we live in, infiltrates geographical barriers faster than you can say payday loans.
At Cash Doctors this is exactly the kind of stigma we are trying to avoid. In order to do this we ensure that as a company we are as transparent and straight forward as possible.
This way every client is fully informed as to his or her options and obligations regarding the lending and repayment process. In addition to this we want to take you behind the scenes where only a handful of people have gone before. We are going to share with our clients just how much it costs us for a loan to be issued.
The fixed costs associated with providing a small loan are exactly the same as those for providing a large loan. This is where it is misleading for some critics, as at first glance it can seem as if payday lenders are charging higher rates without justification.
However, with further investigation the fact presents itself that providers of larger loans are able to recover their costs and additionally make a profit with a lower Annual Percentage Rate (APR) over a long period of time.
This is in direct contrast to the circumstances that surround short-term loans. It is inevitable that providers of loans such as these must charge higher interest rates, as the time period available in which the client pays back their loan is a great deal shorter.
Furthermore, the Cash Doctors’ payday lending principle is in the $100’s, not in the $1000’s or even the $100 000’s. Interest is charged as a percentage, which produces a small fee if it is based on a small principal. If the loans were offered at a lower interest rate then they would be in no way profitable, and no one wants to run a business at a loss.
Hard evidence can be found in a credit provider’s actual figures. The average cost to provide a loan to date is $100, yet in some respects there are a number of higher costs that apply to the smaller loans that Cash Doctors provides.
The cost of obtaining funds to lend to sub-prime clients is higher due to the fact that smaller quantities are required and the high risk that is associated with short-term loans. These costs of course, do not apply to providers of larger loans.
When a greater effort is made to understand the cost and nature of payday loans, it is clear to see that high interest rates can be justified. When lenders initiate policies that ensure the welfare of the client is the number one priority, payday loans are a quick and easy solution that benefits both the client and the business.
Reader Comments
Posted By: Tamara Kennedy - 22 April 2008 11:19:40
If I get this loan I'll be recommending this finance company to everyone I know
the confidentiality and security of all your personal details, your
bank details and other information as it is transmitted and stored online.
What will it cost?
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