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The interest rate is NOT based on risk. It's based on them being able to do it because these people have no alternative. It's usury, plain and simple, and shoul
by st3v3r 11y ago
The interest rate is NOT based on risk. It's based on them being able to do it because these people have no alternative. It's usury, plain and simple, and should be stopped.
- Karunamon 11y agoThe entire idea of a payday loan is necessarily high risk for reasons discussed ad nauseum, and that dictates the interest rate. There would be no payday loans (smallish quantities of cash for short periods) without commensurately high interest rates. There's a very real risk of default, and smaller amounts of cash are not economical to process. (Have yet to see one that allows you to borrow <$100) Put another way, imagine you're a VC type and want to disrupt payday loans. You do this by loaning money at more reasonable APRs - say something like 15%. On a one week loan at $300, your profit isn't even 25c. Even with economies of scale, even with all the automation and tech SV can muster, this operation won't even pay its own infrastructure bills. One default and you've wiped out weeks of profit. Removing the option removes a useful and occasionally necessary tool for emergencies.
- st3v3r 11y agoNobody is saying not to allow payday loans. What's being said is to stop the unethical and usurious lending practices. I'm sorry, but being a "useful tool" is NO EXCUSE for what's being done.
- Karunamon 11y agoThose two things are flatly equivalent, because short term loans do not work without high interest rates to both make the loans even a little profitable and to offset the absurd risk. High interest rates are not automatically abusive just because you'd like them to be.