payday loans

All posts tagged payday loans

This isn’t going to be some post about why I think payday loans are a great investment. I’ve never gotten a payday loan myself, so I’m not talking about my personal user experience either. I’m not even going to discuss whether payday loans are good or bad.

What I’m talking about is how payday loans are helping me get a good return on my money! No, I’m haven’t started a check advance loan business that lends money out to people at 200% per year. I’m just helping out people who are already stuck in the vicious cycle of payday loans and who can’t seem to get out of it.

Payday loans come with fees that usually range between $15 and $50. Assuming you’ve taken out a $100 loan for 2 weeks until your next pay period. You’re charged $15 which is 15% of your total. This works out to 390% annualized, so if you can’t pay off the $100 and it rolls over a few times, pretty soon you’ve paid 50% interest. Some people get into a situation where they can’t pay off the first loan and they take out a second one. Eventually they’re paying a few hundred percent interest and they can never get out of this cycle.

That’s when they hear about Prosper and use it to try and break the vicious cycle. I’m currently lending money on about 50 loans on Prosper. About 10 of them are payday loans. While I’ll have several defaults in the past 18 months, none of my borrowers who borrowed to pay off their payday loans have ever defaulted. I’m not sure if such borrowers are statistically less likely to default than other borrowers, but from my experience (which could be biased due to my personal lending criteria) it certainly seems that way.

I think if a borrower is paying 200%+ in interest to payday loan business, he’s ecstatic at paying me 27% a year. At least he knows he can pay me off in 3 years, unlike the other place where it seemed like a slow death-spiral. I’m overjoyed at getting an buffett-matching rate of return on my principle too. It’s the perfect win-win (except for the check advance loan guys!).

That’s why I love payday loans. They make me look good! And of course I love Prosper for making this possible.

Payday loans can be helpful, if you use them responsibly. Never get a cash advance that you can’t afford to pay back on time. Make sure you know what you’re getting yourself into before taking out one of these loans.