I don't need 'em and haven't used 'em, but I have an affinity for payday lenders. Whenever an industry is under attack from the government, regulators, or various do-gooders, the strong libertarian streak in me wants to defend them. Of course, it also doesn't hurt that investing master Peter Lynch considers industries with a high "ick factor" ideal sources of good investments.
Payday lenders are simple businesses to understand. A customer with short-term cash flow problems walks into an Advance America
That fee, however, gets everyone riled up. A $15 fee per $100 borrowed doesn't seem particularly onerous, but consumer advocates want to liken it to the annual percentage rate you'd be charged on a regular loan. When you do that, it equals a 391% APR.
There are a couple of reasons why the fees are so high. Payday customers can be bad credit risks, and default rates can run high. First Cash Financial
Though many associate bad credit practices with the poor, EZCORP
While Advance America and QC Holdings
In a very Lynchian way, payday lenders are good investments. They're disliked by large swaths of people, and they have a high ick factor, but they provide a necessary and highly profitable service. Despite attacks from regulators, payday lenders will survive and thrive. That's good for investors, and it's why I love 'em.
Advance America is a recommendation of Motley Fool Inside Value. Check out why this payday lender is considered a bargain with a 30-day free trial subscription.
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Despite the love, Fool contributor Rich Duprey does not yet own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.