Cash Advance Industry Growth – What’s Fueling It?
The cash advance business has boomed since companies started offering short-term payday loans back in the 1990s. By 2001, lenders had built up a $14 billion industry. Today, earnings top $46 billion. This does not include title loans and other short-term loans. Many of these lenders are small, regional companies, but some lenders maintain more than 100 stores in several states. How do these lenders keep growing their businesses so dramatically?
Although the wage index has not kept up with the pace of inflation and the cost of living, the payday loan business has experienced an almost disproportionate amount of growth. Even lawmakers who advocate reform agree that access to these products is important for immigrants, military personnel, families, college students and anyone who is struggling to cover unexpected expenses.
Diversification has been an important part of the industry’s growth strategy. Payday loans are the biggest earner, but most companies offer other financial services as well, such as free money orders, free check cashing and free bill payment. For companies, the expenditure is minimal, and the services are convenient for the customers. It usually costs about $1 for a customer to get a money order somewhere else.
The savings isn’t significant, but it can still make a difference to consumers. Without an account at a particular bank, it costs about $5 to cash a check plus a percentage of the check’s value. Customers who regularly turn to a check-cashing business can save $15 or more. Bill-pay services only cost a few dollars, but they are convenient, especially if the consumer is coming in to pay down a loan. These services don’t make the company money, but they do bring a significant number of customers in the door, and these leads are tremendously valuable.
Many companies with 24-hour cash advance offices have sky-high employee satisfaction rates. Employees say that their jobs are challenging and fun. They also like their coworkers. Companies earn this status by offering competitive base wages, fully paid insurance, flexible shifts, paid leave and training. In many cases, there’s a chance for promotion in a particular store or within the company. Some businesses also support local charities and events. Companies like this have earned national awards and local recognition as great places to work in the area. In addition, happy employees provide better customer service.
Cash Advance Loan Competition
Cash advance loan companies and their employees are sensitive to competition. Employees are trained to provide excellent service to ensure that customers come back and don’t go to competitors. Many offices are open 24 hours a day to serve consumers who might go somewhere else.
Internet and phone applications have become essential for cash advance businesses. With a legitimate company, customers can apply anytime as long as they have a photo ID, proof of income and a bank account. Nearly instant access to cash and services like free check cashing are intended to position a company within the local market and win the business of each customer who walks through the door.
Other Financial Services
Cash advance firms have branched out by offering additional financial services. While the interest on a typical 14-day payday loan has an APR of 400 percent, some of these companies offer installment loans with longer payback periods and interest rates that are between 100 and 250 percent.
Prepaid debit cards are another payday loan trend that has emerged in the last five years. This is not true diversification; it’s just an alternative way for lenders to distribute funds. Borrowers must have their paycheck loaded onto the card. Then, the lender can deduct money from the card balance instead of a bank account.
With pending regulations and more competition, cash advance outlets may begin offering even more financial services to help customers manage their money conveniently. Additional information on current payday loan trends is available at PersonalMoneyStore.com.