It may not be as amazing a profit margin as you think, depending on how many people default on the loan.
As for more profitable business, how about those guys that spam people, telling them that they're a businessman from Nigeria and need a deposit before giving you their entire life savings for safe keeping? Presumably the email is free (or almost free) for them to send, yet they wouldn't do it unless some people reply. And assuming the cost is zero, the profit margin is infinite if they get any suckers.
Those Nigerian guys actualy work very-very hard. Yes, the initial email is almost free. But then you need to spend hours per "client" crafting personal emails, sending faxes, letters, talking on the phone, etc. And in the end, you get a few hundred dollars (at most a couple thousands) in, I don't know, 15% of the cases that you've spent over 5 hours on.
In North Carolina in 2000, for example, only 6% of payday checks were returned for insufficient funds (NSF) and lenders recovered about 69% of the value on these. They also collected $2 million in NSF fees.
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As for more profitable business, how about those guys that spam people, telling them that they're a businessman from Nigeria and need a deposit before giving you their entire life savings for safe keeping? Presumably the email is free (or almost free) for them to send, yet they wouldn't do it unless some people reply. And assuming the cost is zero, the profit margin is infinite if they get any suckers.
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As for the defaults on the payday loans, you'll be surprised. http://www.responsiblelending.org/issues/payday/briefs/page.jsp?itemID=29557872
In North Carolina in 2000, for example, only 6% of payday checks were returned for insufficient funds (NSF) and lenders recovered about 69% of the value on these. They also collected $2 million in NSF fees.
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