Payday Loan Franchises; Vote YES For A %Rate Cap! The Daily Franchise Show, 10/20/08

I am sooooo happy that I never helped any of my franchise candidates get into a Payday Loan/Check Cashing franchise. Maybe that is because I don't feel that a 391% interest rate is a bargain....

This type of franchise financing could be the way.

Hear a recent Radio Interview about how the current economic cycle is affecting the franchise industry.
Here.

Comments

[Angie]

Payday Loans are a quick and very convenient way to get some extra cash when an unexpected emergency arises.

[payday loan]

Payday loans are a great way to get that extra little bit of cash when you need to fill up that gas tank, get the rest of the rent money, or just want to go do some shopping. Quick, easy, and fast, payday loans provide that much needed extra money when the time arises.

[Payday Lending Rep]

A 28% APR on two-week payday loans is not a fair fee. I suppose it might seem fair to those who are actually paying it, because they'll be paying close to nothing. But that will only last as long as the lenders can stay afloat, which will not be long at all. Believe me, this will only mean that customers will have to get their short-term credit at other, more expensive, venues...and I guarantee that their fees will be higher.

Let's think about this correctly. If a customer took out $300 (the average amount for a payday loan), then a 28% APR would mean approximately a $3.23 fee for that loan. So, while a 28% fee may seem reasonable, payday loans are two-week loans and cannot be offered at the same APRs as annual credit products, and it is not logical to do so.

If you want to do this in reverse and compare annual products rates in two-week terms with payday loans, this is what you would see:

Yes, a $15 fee on a $100 payday loan is 391% APR. However, a $100 bounced check with $55.59 NSF/merchant fee is 1449% APR; $100 credit card balance
with $37 late fee is 965% APR; a $100 utility bill with $46.16 late/reconnect fees is 1203% APR; a $100 off-shore Internet payday advance with $25 fee is 651.79% APR; $29 overdraft protection fee on $100 is 755%, just to name a few.

I hope this helps put things in perspective for you.

Reputable payday lenders are not trying to scam people and their fees are very reasonable. The low fee that you are supporting would put every payday lender out of business. A 28% APR, as I just illustrated, could not cover the cost of originating a loan, let alone meeting employee payroll and benefits and other fixed business expenses.