Cash Advance Services

In theory, cash advance services ought to change so that the supply and demand in the labor market are always in equilibrium. In practice, cash advance services are often sticky, especially in a downward direction: when demand for labor falls, cash advance services do not fall. In this situation, the fall in demand results in higher involuntary interest rates. Cash advance lenders may use collective bargaining to keep cash advance services above the market-clearing rate. Furthermore, many governments impose minimum interest rates that cash advance lenders must comply.

Cash advance services lenders may choose to charge below the minimum rate to increase the volume of borrowers. Such so-called efficiency rates may make borrowers less likely to borrow from another cash advance services. They may encourage borrowers to not default on the loan. They may also attract a higher quality of borrowers at the market-clearing rate; better borrowers may have a lower reservation rate (the highest rate for which they are willing to borrow) than the market-set rate.

In recent years, cash advance services have tried to reduce rate stickiness by increasing the proportion of money loaned that is linked to the performance of their firm. Thus if falling demand reduces the cash advance services profit the interest rates of its borrowers fall automatically, so it does not have to lay off as many workers as it otherwise would. Performance-related interest rates can also reduce costs for cash advance services by giving employees a stronger incentive to do a good job.