How a Cash Advance Business Generates Profit

A cash advance business charges interest on loans like all lenders to generate a profit. Cash advance lenders charge a particularly high interest rate to compensate for the risk of the loan. This allows them to profit even if many borrowers default.

Defaults on Cash Advances

Defaults on cash advances are incredibly high because most borrowers taking the loans are not credit worthy. This means they have likely defaulted on other loans or do not have an income. Prudent lenders will not extend financing to such high risk borrowers. However, cash advance lenders extend these loans in high numbers. They anticipate a certain amount of defaults, but they can stay in business due to the high interest and finance charges they assess on those who do repay the debts.

Finance Charges on Cash Advances

Cash advance lenders often have charges beyond simple interest in order to make a profit. For example, they may exact a sum up to 100 percent of the value of the loan if it is even a day late being repaid. These charges often require the borrower to take an additional loan, which is then paid back on interest. This means a cash advance lender has a very high return if a borrower does eventually pay back a loan.

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