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Many people who are enticed by the idea of making passive income and living off easy money quickly become interested by the idea of the payday loan business. Payday loans are indeed a very profitable scheme; which is part of why they are rapidly becoming more and more difficult to get into as a business.
What is a payday loan? A payday loan covers and employee for short amounts of time (often due to unemployment), and issues payments in accordance with the normal, twice-a-week pay cycle. These continue for as long as the borrower wants, and the loan is then amortized and he begins paying it off two weeks later.
Typically the loans are charged 15% to 30% interest. This may not sound usurious (especially since it is rather close to the charges of credit cards), but the catch is that all of these loans are individual; in other words, each cycle in the Payday loan business is a loan in and of itself, and it gets amortized along with all the others. The lender then combines the loan payments into a single payment, but doesn’t consolidate them, meaning that the amount of interest that you will be paying will be very high…upwards of 40% or more when it is all said and done, if you have been borrowing from Payday loans businesses for a long time.
Many states now have laws against payday loans, protecting borrowers from usury. Many others have them under tight regulations, making it much more difficult to start such practices. It is not always how much money you make, sometimes it is how you make it.