By far, one of the biggest justifications that big banks can find for taking on small-business short-term lenders is the fact that the small loans keep some people off of the credit-card grid… it’s financially motivated.
The big finance industry has their APR rates limited, and they do not offer the small loans like payday loan companies offer because it would not be profitable for them. At the same time, they look at the blossoming payday loan business and see that they are making huge profits, while serving millions of people daily.
Of course there are a ton of legislation pieces around the nation and even around the world that restrict APR rates. Long-term rates are much much less than short-term rates, much in the way renting a hotel room is expensive over a year compared to just renting a place.
If they are capped at 36%, or limited by the amount of money they can loan out, they will not be able to stay in business. This creates a problem for consumers, because financial institutions do not make small, short term loans.
One of the main reason these big companies don’t try to market short-term loans is because they spend to much to work on a loan to make it profitable. Making $50 per loan isn’t enough to cover the costs of the paperwork for the big guys.
Then again, some people suggest that the big lenders actually are behind the smaller lenders, lending money in lump sums rather than to specific people who want a loan, meaning they are making money on the side.
The big guys are going to be rolling in the dough regardless of what happens, and they need the small companies. That might be another reason they are conflicting: the big guy needs the little short-term loan lender, which might be an ego thing.
If the small payday loan companies are driven out of business by legislation to limit their profitability, the consumers will need to go elsewhere for their short term loans.
They can go back to pawning items, althouigh there is some legislation of a similar limiting nature going on there also.
Of course, some people might need short-term loans that the big banks will be forced to offer them — but that probably won’t occur.
The big banks outrageously despise the small short-term loan lenders because they are succeeding in markets where the big banks can’t expand. There are simply tons of small financial companies.
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