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> I'm still of the opinion that using APR's to describe a loan held for ~a week is about as useful as the weatherman giving you the forecast in degrees kelvin:

by IanCal 11y ago

> I'm still of the opinion that using APR's to describe a loan held for ~a week is about as useful as the weatherman giving you the forecast in degrees kelvin: technically correct, but completely worthless. It's a comparative figure, which is particularly important for underscoring the consequences of owing money in the long term. > "Get $300, pay it back plus $30 a week later" is much more relatable. That's certainly OK to show in the UK, you just also have to show the APR. > And isn't a bad deal, when you need cash now. Assuming you can pay pack $330 next week and don't need to borrow $330 to pay $363 the week after... > "Missing a payment" isn't even a thing you can have happen on most classes of payday loan. You have to provide a pay stub, and a post-dated check, and the money just gets taken out on the day of. Again in the UK, but this is certainly possible. A post dated cheque can bounce, and should never be given out in the first place (you can cash them at any time).

SilasX 11y ago
>It's a comparative figure, which is particularly important for underscoring the consequences of owing money in the long term. But it's not comparative -- in e.g. mortgages, they separate out costs (e.g. "closing costs", PMI, inspection) that should rightly count towards the effective interest rate [1]. If they did the same for payday loans, they could (reasonably IMHO) break out the (far more legit) processing costs -- say, $5 in labor, $5 (amortized) for overhead like security, and then you're paying more like $20 for "interest" if you measured by the same basis as a mortgage. [1] For example, if they loan you $300k for the home at 5% but require $3000 in such costs, then they've really loaned you $297k at ~5.05%.
- IanCal 11y ago
  In the UK the APR is supposed to be a figure which includes all costs, it's why payday loans have such high values as any fixed costs are considered part of this. As far as I understand it anyway.
  - SilasX 11y ago
    Really? UK mortgage APR numbers account for inspection costs and mortgage/title insurance?
    - IanCal 11y ago
      Any required costs, yes: http://www.ybs.co.uk/mortgages/mortgage-glossary.html http://www.ybs.co.uk/mortgages/mortgage-glossary.html > Overall cost for comparison > APR (Annual Percentage Rate) - This is a figure which all lenders must quote when referring to mortgages. It is designed to show the total yearly cost of a mortgage stated as a percentage of the loan. It includes items such as the interest rate payable at the start of the mortgage and after the initial rate period has ended, Mortgage Application Processing Fee, Product Fee, Valuation Fee and Mortgage Fee. It is the overall cost for comparison purposes. This figure is intended to help customers to compare the overall cost of different loans. I'm not sure what mortgage and title insurance are, perhaps they're more US specific things. External costs (solicitors, taxes like stamp duty, etc) are not included in the figure.

by IanCal 11y ago

SilasX 11y ago

>It's a comparative figure, which is particularly important for underscoring the consequences of owing money in the long term. But it's not comparative -- in e.g. mortgages, they separate out costs (e.g. "closing costs", PMI, inspection) that should rightly count towards the effective interest rate [1]. If they did the same for payday loans, they could (reasonably IMHO) break out the (far more legit) processing costs -- say, $5 in labor, $5 (amortized) for overhead like security, and then you're paying more like $20 for "interest" if you measured by the same basis as a mortgage. [1] For example, if they loan you $300k for the home at 5% but require $3000 in such costs, then they've really loaned you $297k at ~5.05%.

IanCal 11y ago
In the UK the APR is supposed to be a figure which includes all costs, it's why payday loans have such high values as any fixed costs are considered part of this. As far as I understand it anyway.
- SilasX 11y ago
  Really? UK mortgage APR numbers account for inspection costs and mortgage/title insurance?
  - IanCal 11y ago
    Any required costs, yes: http://www.ybs.co.uk/mortgages/mortgage-glossary.html http://www.ybs.co.uk/mortgages/mortgage-glossary.html > Overall cost for comparison > APR (Annual Percentage Rate) - This is a figure which all lenders must quote when referring to mortgages. It is designed to show the total yearly cost of a mortgage stated as a percentage of the loan. It includes items such as the interest rate payable at the start of the mortgage and after the initial rate period has ended, Mortgage Application Processing Fee, Product Fee, Valuation Fee and Mortgage Fee. It is the overall cost for comparison purposes. This figure is intended to help customers to compare the overall cost of different loans. I'm not sure what mortgage and title insurance are, perhaps they're more US specific things. External costs (solicitors, taxes like stamp duty, etc) are not included in the figure.