Tuesday, July 10, 2007

Should I Sell Out like Other PFBlogs? (Poll)

So recently I was contacted by a payday loan company wishing to advertise on my site. This caused me a giant moral problem in that payday loans are in almost every case an awful idea which trap people into cycles of debt dependency and cause human misery.

On the other hand my blog barely makes any money (2 cents a day is a good day), and writing two posts a day for 1 cent a post can be disheartening.

Other sites, like The Simple Dollar and Lazy Man and Money, and a bunch of other sites do advertise payday loans. I think sites like The Simple Dollar and LMM really sacrifice a lot of moral high ground by doing it however.

What do you guys think?


Flexo said...

If you believe your readers are intelligent, then you should also believe they know the difference between an advertisement and an endoresement (unless you purposefully blur the line between the two).

BTW - There already is a spam trackback linking to a payday loan site in response to your post. So you're advertising one without even "approving" the ad until you delete the spam. And they're not even paying you.

Alex said...

Hey, good catch! I wouldn't have even noticed that.

I can see the argument that readers are intelligent. Certainly my readers, being almost all PF Bloggers, are definitely top notch smarties, but I worry about the one or two readers who I might be helping in pushing them towards pay day loans.

Patrick said...

I have had the same inquiries from payday loan companies. Currently, I have not even bothered to respond to them. I wonder what they would even pay? I'm sure it is not much (maybe a few dollars a month).

Lazy Man and Money said...

Here's my philosophy on payday advertisements... I'll warn you in advance that many will consider my logic "convenient".

1) I've done click tracking on my site and in an entire month, there may be two clicks on my payday loans combined. I suspect that a high percentage of them are by accident.

2) Most payday loan advertisements are in the form of text links. I suspect that payday loan companies are interested in using my page rank to benefit themselves for certain searches in Google or other websites. Such links are often a term like "payday loans". If my suspicion is right, I'm only helping people who are looking for "payday loans", find a particular company. If I don't accept the advertisement, the person will likely just find a different payday loan.

3) My readers are generally knowledgable enough to know that interest rates of 100%+ are not good. Even when I recommended Prosper.com as a way to borrow money at rates that range from 8-30% (in order to consolidate your high interest credit cards), only three people actually signed up with Prosper to try to borrow money. I've had somewhere around 50+ sign up to lend money. This leads me to be believe that my visitors tend to be the investors, not the borrowers.

4) I don't believe that payday loans are bad. I'm very much on the fence on this one. Let me make it clear... their interest rates are insane and I don't recommend that people use them. Still they need to charge these interest rates because their customers, on average, are very bad about paying back their debts. If these companies were making money hand over fist, you could be sure that new companies would lend at a cheaper rate to take all their business. Then more competition would further drive the rates down. You don't see that happen because rates are as low as possible with the huge number of defaults they have. I have realized this from my Prosper lending experience. I can barely brake even if I charge 29% to grade D borrowers. Imagine what percentage I would need to charge grades E, high risk, or no credit people?

I have said it a few times, but I believe that payday loans are kind of like a bad hospital in bad neighborhood. Would you be better off with a hospital that makes mistakes or no hospital at all? Those are the only two options unless you want to improve the neighborhood - which is the real fix. In this case, the real fix is to improve the customers and the payday loans would disappear.

Alex said...

thanks for your post LMM. Sorry for the provocative title (have to bring in traffic)

Having crunched some of the Prosper number too, I see what you mean about high risk people requiring higher interest rates for lenders to be compensated for the risk of default.

Definitely the customers would be better off if they could improve themselves, and get off of payday loans, but I always wonder how anyone is expected to pay off a loan at 100% APR, it just seems like if you can't afford a $2000 set of furniture, how are you supposed to pay off the loans, once the amount becomes $4000?

Would you be better off with no furniture?

Single Ma said...

I accept payday loan ads then give the proceeds away to readers who are caught up in the payday loan debt repayment cycle. If you think that's immoral, then I don't mind.

Lazy Man and Money said...

I think you'd be better off with furniture from Craigslist or FreeCycle. WalMart sells a $100 futon if you don't like the idea of sleeping on someone else's old mattress ;-).

The only purpose I can see for a payday loan is if you know you just wrote a bad check that is going to trigger $100 in bounced check fees (or something similar). And then pay that $130 (interest) off completely with the next paycheck and not use it again. Start building up an emergency fund if it requires eating white rice and ramen noodles each day of the week.

One Frugal Girl said...

I have been faced with this same dilemma but so far have always turned the payday advertisers away. So what did you decide to do?


Nobody ever made a penny panicing.