The common belief is that payday loan borrowers are somehow ignorant of the true costs of the loan. While their may be some truth that they belong to the economically dis-advantaged sections of society, they may not necessarily be completely dumb.
Most of them take out a loan to pay for emergencies. If you need your car repaired, without which you can't get to work, paying 50-250% an annual interest seems like a necessary expense. In fact, if its only $250, and you expect to be able to pay it off in a week, paying an extra $60 might even seem like a bargain. Especially if the borrower has the potential to work over-time to pay it off.
Borrowers get into trouble when they borrow more than they can afford to pay back within a short period of time. Thats when these cash advance loans can eat you alive.
In fact, there are hundreds of borrowers on Prosper.com who are willing to pay 30% interest, just to get out of 100-200% interest loans. For borrowers, this is particularly attractive. Where else can you earn a 30% return on your money?
Of course, the best investment is start a payday loan business, but that is incredibly capital intensive than lending money on Prosper.
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