How The Payday Loan Companies Make Money

There is not a doubt that you have heard of payday loan companies

, and may have heard that they have some rather unscrupulous business ethics. If you are caught in a financial bind and need money right away, you may not have a choice, but to take out a payday loan. If you know how they make their money, and you think things through entirely, you will be able to take out a payday loan and not get yourself into even more financial trouble. If you know how these kinds of companies make their money, you can avoid having to pay them more than you are required to.

There are many people that may need to borrow funds at one time or another in order to make ends meet. There is a demographic of people who typically end up applying for payday loans. These people usually have a relatively low income, and they have a poor credit rating. This is what stops them from applying for traditional ones at a bank. It is difficult to get approved for one from a traditional bank if you have a less than perfect credit score and a low income. However, you can easily get approved for a payday loan.

Of course, like any other business, payday loan companies need to make money also. A lot of the money that this business makes is through the interest that they charge customers. This is typical for any business, including banks, that you need to borrow money from. They also make money from the fess that you will be charged if you cannot pay off the loan in full when it is due. You will need to pay a fee to have an extension, and this could be a rather large chunk of cash depending on the company and how much you borrowed.

In the end, the payday loan businesses are hoping that you will not be able to pay back the loan when it is due. This means that you will continue to pay for extensions, and they will make more money from you. This is why a lot of advertising for these kinds of companies revolves around trying to get you to purchase frivolous items with your loan, and not just the bare necessities. Then you are essentially spending money that you do not have on items that you do not need. This is how the payday loan companies make money.

by: John Simons

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