Apr 02
ssanfordemergency loan, emergency loans, Short Term Loan, Short Term Loans
In many cases, if you can avoid having to borrow money, you should – most people would agree with that. However, there are definitely some cases where a short term loan of a limited amount of cash is justified. I thought I’d share a few of those here.
- Sudden Emergencies. We’ve probably all been in unfortunate jams – blown tire, water heater breaks down – and having access to quick cash would be a life saver.
- Unexpected Expenses. Ever go to the dentist for a cleaning only to find out you’ve got a cavity? Or how about a phone bill that’s higher than expected? These situations are less urgent than an emerency, but often leaves you flat-footed and needs to be taken care of quickly.
- Small Bridge Loan. This is the classic “ran out of money before I ran out month” problem, and having access to short term loans is a bit more appealing than going hungry. But be careful – if you find yourself in this category for many months in a row, it’s a sure sign you’re living “above your means” and needs some active management to get things back in line.
- Family Security. Some would disagree with this, but I personally think that every member of your family who is out alone needs to have a cell phone for personal security reasons – and for parental peace of mind. If you don’t have the extra cash or prime credit to get phones, I would personally borrow money to outfit my family with mobile phones.
- Building A “Sub-Prime” Credit File. Everyone has a credit file with the “big three” credit reporting agencies, but short term lenders don’t look at them – if you had a good “prime” credit score, you would just borrow from a bank. But did you know that there are credit reporting agencies for “sub-prime” creditors? It could be a good idea to start establishing some history with one short term lender (one with flexible repayment options, APRs as low as possible, and great customer support) just so you have a “rainy day” source of short term loans when needed. Start small — a $100 loan is a good start — get yourself on a payment plan if one is offered, and pay it off over time. Then do it again, at $200, again at $300, $500, etc.
Just one caution with short term loans: only work with one lender if at all possible. Why? Because just like credit cards, short term loans are a slippery slope and once you have two lenders, there can be a strong urge to start “robbing Peter to pay Paul” and that’s the beginning of a very bad story.
So – short term loans do have their value, even if you don’t need them right now. In today’s ever-changing economy, it would be a good idea to have a a back up plan for life’s little surprises.
Jun 15
jlarsenpayday loan, paydayloans, Short Term Loan, Short Term Loans
Why it’s hard to be a short term lender
Being a short term lender is a rough business. I am not trying to gather sympathy or a ‘poor me’ vote. I am simply saying that with the increasing smart fraud rings, government oversight and very high demands of good consumers. (Good being defined as customers who apply for a short term loan with intent to pay the loan back) the business is getting harder to make profits.
What did he just say? Hard to make profits at triple digit APR? Yes. Very hard.
Here is why:
- Fraud rings are fast moving and hard to spot
Fraudsters are very good. They steal identities that look very good to underwriters. They have access to bank accounts and have started to recruit industry insiders to learn how to beat the system. I would say that about 10% of loans are taken by a person who has no intent to pay the loan back.
Some quick math:
If a company makes $100 in loans and loses 10%, they must make 10 dollars in profit to cover that loss. That $10 in profit is coming from good paying customers. Not to mention that booking the bad loan costs about $4 dollars for processing the loan. (This $4 dollars includes 3rd party calls to credit agencies and labor for reviewing applications, customer support, etc)
So, out of $100 in principle loans – a company losses about $14 to fraud.
That’s not bad - certainly not enough to prohibit profitability. Moving on.
- Good customers sometimes have problems
The simple fact of this problem is – Customers who need $250 loans, have checking account problems that need to be resolved. They go negative sometimes. As the economy trends continue to be poor. Customers 2nd + default rate continues to rise. (2nd + default rate is an industry term used to define a customer who makes a good first payment and then fails a 2nd or other payment)
2nd pay default rates have increased from 5% a few years ago to north of 10% . So, good customers are defaulting on part of the loan.
What options does a company have? If a customer says “I do not have money in my account” can any company really even attempt the payment in good faith? No.
It’s important to note that good customers usually do make good over time. But at a reduce yield. The money loaned stays out longer and returns less revenue – lowering effective APR.
This accounts for a 10% loss in revenue + the $14 from fraud. That leaves less profit then industry critics would like to admit.
- Keeping the lights on is hard
Government oversight is good. I believe it needs to improve. Consumer awareness of the high interest rate and the impact of payday loans and short term loans need to be burned into the minds of the consumers who use them.
However, lacking federal law has put the states in charge of regulating this industry and they are not able to handle the complex company structures and laws that companies hide behind. Also, the sheer volume of different state laws makes good law abiding companies put forth very complex systems to report usage, calculate complex state by state loan limits, APR, max pricing, max loan amounts, and notification to spouses just to name a few.
State by state products are expensive to build and maintain – requiring large development staff which are expensive.
A Company who does right by its consumers will make less than 20% profit in my experience. 40% of revenue will be loan loss, 20% will be operating expenses – which leaves the 20% of revenue as profit. That is not out of line with other industries.
May 28
jlarsenShort Term Loan, Short Term Loans California, Short Term Loans
I am a fan of the California short term loans and the regulatory body. I think it has a good balance of meeting consumer demand and keeping lenders in check. Also, of course in being why we love California they pursue the lenders who do not stick to these ideals.
Also, I love the $250.00 maximum amount to borrow – if you have regular emergencies that require more than $250 to solve, there are probably bigger issues than just cash flow. The 250 maximum is a nice balance for the typical short term loan customer to work with and pay off.
California also does not allow rollovers – These are the non-principal payments that many lenders make their money on. Any interest only payment is bad, it does not matter if you’re talking about a mortgage or a paydayloan.
Also, the mandatory payment plan that California short term loans must provide is great. It forces lenders and customers to work together to come up with a solution to debts being paid.
While many of the internet marketers will throw money and complex loan products at you – it’s tough to beat the spirit of the California rules.
May 17
jlarsenpay day loans, Short Term Loans emergency loans, payday loan, paydayloan, paydayloans, Short Term Loans
Overdraft vs. PayDay Loan – What would you do?
I bet my mother bounced 5 checks a year when I was in high school. She was a nurse, made good money. My father was a mechanic. Very blue collar middle America folks. They were both responsible people, they worked hard and paid their taxes on time. They did however, make some poor money decisions now and then that put them in a bind.
My mother would never consider taking out a payday loan – they were for ‘poor people’. Having been in the industry now for a few years. My mother would be interested to know that the paydayloan typical demographic is not ‘poor’. In fact, given our current economy – the average payday loan borrower has a household income of about 75k per year. Surprised?
The old way of thinking that my mother had was flawed. She would bounce a $75.00 check. Pay $25 to the bank and $25 to the merchant. That’s $50 bucks for failing to prepare a SINGLE DAY. Any respectable (and some not so respectable) Payday Loan company offers next day funding and cheaper fees than overdraft. Check anyone online. The prices range from $14 per $100 (365% APR) up to $30 per $100 (700% APR+) and even higher depending on the lenders polices. Overdrafts are expensive – They are also accepted by society by far more people than payday loans.
The dirty little secret of our industry is this – Many everyday customers use our products responsibly and even become loyal to short term loan companies for lending them money. Yes, beyond a doubt – people abuse these loans and create or add to an already existing cycle of debt. The customers who abuse the product are the people who need awareness and financial literacy training.
The real problem is not with the everyday folks who use payday loans from time to time. The problem is the abusers, fraudsters and financial addicted individuals who continue to make bad decisions.
If you’re a person who cares about their financial health and is in a temporary bind. Give the company below a chance to help you. They have fair policies and offer a good product.
If you’ve had more payday loans than you can count, or your addicted to short term loans – you probably didn’t read this far down the blog posting anyway and just clicked the button. (Which makes me sad for more reasons than one)
Apply for a PayDay Loan
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