Pay day loans are these bad, scum of the earth companies out there to rip people off their hard earned money. At first sight, it might seem that they are filling a legitimate need. People sometimes need short term loans. They could have an urgent expense that can't wait for pay date. So one could go to a friend for credit for a while or get it from someone you know. Most times the loan is a personal favor so there is little or no interest paid. Banks generally don't give our short term loans because it doesn't make sense for them financially. What if you didn't know anyone that could lend you money?
Enter the Pay Day loan companies and Cash Advance stores. Traditionally your neighborhood stores would double up as Check cashing stores. Some of them saw an opportunity and started offering pay day loans or cash advance. The way that works is you give a check to the store when they give you money. The store will then deposit the check a day or 2 before your pay date to take back the money with a nice margin fee on top. The fees generally range from $15-$20 for every $100 they lend. Keep in mind, the time frame is less than a month. So if one does the math, this translates to about a 400%-500% APR. Holy mother of God! Yes that's right. So now you know, why I hate them so much.
Now what happens when you take evil business model and mix it with the big bad world of internet. Bazoomba! An instant $6bn industry! Look I get it, its a risky business. The default rates are high and risk of loss of principal. But the 'payday loan sharks' (I came with this new term, just now) have perfected this business model and optimized it to the most efficient level. Now when you borrow money you're basically mortgaging your credit score and financial future off to them. Plus there is so much data available online about you, that these companies have sophisticated models to predict exactly the likelihood of someone paying them back. So in essence they reduced the risk of loss significantly. Now one would think that they would pass back some of these efficiencies back the people who avail of their services. But as Gordon Gekko famously said, Greed with a capital G is good. The rates are still the same, the interest rates still ridiculously astronomically high.
I believe this space is ripe for disruption and one I'm not going to feel bad about dying. I think I would put them above music industry and banking industry in my hate list. I can see the signs already. A bunch of startups are trying make a difference. Activehours is interesting idea and their idea seems to be that one should be able to get their salary in advance if they have already put in the hours since the pay back is assured then. Lendup is another company who trying model an alternate credit score using your social and online date. Sociogrammics is also doing something similar.
Good, but not great yet. We need more of the smart young people to work on a real problems instead of building another mobile/social/photosharing app to check-in the next time you fart!
Enter the Pay Day loan companies and Cash Advance stores. Traditionally your neighborhood stores would double up as Check cashing stores. Some of them saw an opportunity and started offering pay day loans or cash advance. The way that works is you give a check to the store when they give you money. The store will then deposit the check a day or 2 before your pay date to take back the money with a nice margin fee on top. The fees generally range from $15-$20 for every $100 they lend. Keep in mind, the time frame is less than a month. So if one does the math, this translates to about a 400%-500% APR. Holy mother of God! Yes that's right. So now you know, why I hate them so much.
Now what happens when you take evil business model and mix it with the big bad world of internet. Bazoomba! An instant $6bn industry! Look I get it, its a risky business. The default rates are high and risk of loss of principal. But the 'payday loan sharks' (I came with this new term, just now) have perfected this business model and optimized it to the most efficient level. Now when you borrow money you're basically mortgaging your credit score and financial future off to them. Plus there is so much data available online about you, that these companies have sophisticated models to predict exactly the likelihood of someone paying them back. So in essence they reduced the risk of loss significantly. Now one would think that they would pass back some of these efficiencies back the people who avail of their services. But as Gordon Gekko famously said, Greed with a capital G is good. The rates are still the same, the interest rates still ridiculously astronomically high.
I believe this space is ripe for disruption and one I'm not going to feel bad about dying. I think I would put them above music industry and banking industry in my hate list. I can see the signs already. A bunch of startups are trying make a difference. Activehours is interesting idea and their idea seems to be that one should be able to get their salary in advance if they have already put in the hours since the pay back is assured then. Lendup is another company who trying model an alternate credit score using your social and online date. Sociogrammics is also doing something similar.
Good, but not great yet. We need more of the smart young people to work on a real problems instead of building another mobile/social/photosharing app to check-in the next time you fart!
