4 ms·

Why would Google do that? Payday loans are despised by consumer advocacy groups, governments, and my Mom, alike. Nobody likes payday loans, except of course the

by pmcginn 16y ago

Why would Google do that? Payday loans are despised by consumer advocacy groups, governments, and my Mom, alike. Nobody likes payday loans, except of course the companies that make billions providing and servicing them. Those companies and the people that actually make use of their services, of course. This author might not have noticed, but generally markets for things no one wants don't exist. It's tempting to view loans that are typically paid back quickly in terms of an APR, but it's extremely deceptive. The reason the annual rate is so high is that, surprise, people who can't plan their budget out more than a few days in advance are also not generally the best at paying loans back on time (or at all.) And viewed in raw amounts, paying an extra few dollars a week from now for milk today isn't the worst deal in the world, if it keeps the kids fed.

goodside 16y ago
Also, "400% APR" is misleading because it implies somebody might potentially take out the loan and pay it back five-fold a year later, when in reality these loans are almost always paid back either quickly or not at all. By extension, any time you pay 50% more on the price of something in order to have it one day sooner (cough medicine at a convenience store, food at an amusement park, etc.) you're getting it at an APR in excess of 10 to the 60th power.
- deleted 16y ago
  [deleted]
- retube 16y ago
  I don't agree the APR is misleading. An APR is a normalised, comparable rate. That's exactly why you should look at the APR. Just because the loan is for a short time is irrelevant. It's like staying in a hostel and being charged a 5* rate just because you'll only be staying there for a short time. Edit: the company you are borrowing from will be borrowing the money they lend to you at probably 10 - 15% APR (in the UK). That's quite a spread.
  - gaius 16y ago
    Let's say that 1 in 10 payday loans are written off, and one in 10 payday loans companies fail. What rate of return to you need to make it worthwhile investing in this industry (the capital has to come from somewhere). What if it's 1 in 5? I don't think this business is a licence to print money, the various providers must be competing with each other...
  - goodside 16y ago
    A monthly rate is no less normalized or comparable than an annual one, and it's more representative of the timescales the loans are actually used for. If you required hotels to report their nightly rates in terms of how much it would cost to stay there for a year, they would look about as ridiculous as a 400% APR. I don't know how hostel pricing works, but at least in the US staying in a hotel for a year is fantastically more expensive than renting a comparable furnished apartment for a year.
  - yummyfajitas 16y ago
    There are even worse APR's. Suppose you place a bet at 2:1 odds, 7 minutes before a 3 minute horse race. The racetrack is essentially borrowing money from you at at an APR of 3.6 million %! The right way to look at loans is to break them down into APR and default risk multiplier. The total amount which needs to be paid back is DRM x exp(APR x duration). Payday loans, much like the racetrack, have reasonable APR's but high DRM's. Dividing ln(DRM) by small numbers is as ridiculous as dividing a $1 investment by 1/1 billion % of a company and claiming that 37 signals has a $100 billion valuation. Yeah, they are using a standard formula, but in a ridiculous way. Models are pointless when you use them beyond their range of validity. http://37signals.com/svn/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment http://37signals.com/svn/posts/1941-press-release-37signals-...
mlinsey 16y ago
Unfortunately, I don't think it's uncommon to take out a new payday loan to pay off an old one, in which case the raw dollar amounts become more significant quite quickly.
wazoox 16y ago
> generally markets for things no one wants don't exist. This is not an excuse for predatory practice. By this metric, there is a market for crack, why would you despise honest crack dealers, they're simply satisfying their customers after all.
- pmcginn 16y ago
  I'm a libertarian with agorist tendencies, so I believe that anything that doesn't harm another person or another person's property against his will should be legal. I believe the role of government should be to protect me from other people, not from myself. If I want to buy crack, and someone wants to sell me crack, you shouldn't be able to stand in my way. If I want to take out a short term loan a a high percentage rate, Cringely shouldn't be able to stand in my way. I don't want a third party eliminating choice from my life just because a hypothetical victim may exist. I'm an adult of sound mind, and will make my own decisions.
  - lsc 16y ago
    Personally, I agree that if you can find someone willing to sell you crack, and you want to buy it, you should be able to do so without facing jailtime. However, this doesn't mean that I would feel okay about selling you crack myself, or that I think highly of people who are willing to sell you crack. One can agree that something is undesirable or even evil without thinking it should be illegal, and yeah, personally, I think that both encouraging another person to use a highly addictive substance and profiting from usurious loans are "evil" acts, even though I don't think either one should be illegal.
adamtj 16y ago
Everybody knows payday loan providers are predatory sharks preying on the poor and helpless. The problem is, how do you distinguish them from the saintly providers of short-term emergency loans? Short-term emergency loans can make dramatic differences in the lives of the poor and helpless. They can help people "get over the hump", so to speak, and prevent utter disaster. Unfortunately, people who need such loans often default, resulting in high interest rates. Also unfortunate is that many people live their lives in a state of near-constant emergency. But what can you do? The constancy of their emergencies doesn't make them any less bad. http://en.wikipedia.org/wiki/If_by_whiskey http://en.wikipedia.org/wiki/If_by_whiskey

by pmcginn 16y ago

goodside 16y ago

Also, "400% APR" is misleading because it implies somebody might potentially take out the loan and pay it back five-fold a year later, when in reality these loans are almost always paid back either quickly or not at all. By extension, any time you pay 50% more on the price of something in order to have it one day sooner (cough medicine at a convenience store, food at an amusement park, etc.) you're getting it at an APR in excess of 10 to the 60th power.

deleted 16y ago
[deleted]
retube 16y ago
I don't agree the APR is misleading. An APR is a normalised, comparable rate. That's exactly why you should look at the APR. Just because the loan is for a short time is irrelevant. It's like staying in a hostel and being charged a 5* rate just because you'll only be staying there for a short time. Edit: the company you are borrowing from will be borrowing the money they lend to you at probably 10 - 15% APR (in the UK). That's quite a spread.
- gaius 16y ago
  Let's say that 1 in 10 payday loans are written off, and one in 10 payday loans companies fail. What rate of return to you need to make it worthwhile investing in this industry (the capital has to come from somewhere). What if it's 1 in 5? I don't think this business is a licence to print money, the various providers must be competing with each other...
- goodside 16y ago
  A monthly rate is no less normalized or comparable than an annual one, and it's more representative of the timescales the loans are actually used for. If you required hotels to report their nightly rates in terms of how much it would cost to stay there for a year, they would look about as ridiculous as a 400% APR. I don't know how hostel pricing works, but at least in the US staying in a hotel for a year is fantastically more expensive than renting a comparable furnished apartment for a year.
- yummyfajitas 16y ago
  There are even worse APR's. Suppose you place a bet at 2:1 odds, 7 minutes before a 3 minute horse race. The racetrack is essentially borrowing money from you at at an APR of 3.6 million %! The right way to look at loans is to break them down into APR and default risk multiplier. The total amount which needs to be paid back is DRM x exp(APR x duration). Payday loans, much like the racetrack, have reasonable APR's but high DRM's. Dividing ln(DRM) by small numbers is as ridiculous as dividing a $1 investment by 1/1 billion % of a company and claiming that 37 signals has a $100 billion valuation. Yeah, they are using a standard formula, but in a ridiculous way. Models are pointless when you use them beyond their range of validity. http://37signals.com/svn/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment http://37signals.com/svn/posts/1941-press-release-37signals-...

mlinsey 16y ago

Unfortunately, I don't think it's uncommon to take out a new payday loan to pay off an old one, in which case the raw dollar amounts become more significant quite quickly.

wazoox 16y ago

> generally markets for things no one wants don't exist. This is not an excuse for predatory practice. By this metric, there is a market for crack, why would you despise honest crack dealers, they're simply satisfying their customers after all.

pmcginn 16y ago
I'm a libertarian with agorist tendencies, so I believe that anything that doesn't harm another person or another person's property against his will should be legal. I believe the role of government should be to protect me from other people, not from myself. If I want to buy crack, and someone wants to sell me crack, you shouldn't be able to stand in my way. If I want to take out a short term loan a a high percentage rate, Cringely shouldn't be able to stand in my way. I don't want a third party eliminating choice from my life just because a hypothetical victim may exist. I'm an adult of sound mind, and will make my own decisions.
- lsc 16y ago
  Personally, I agree that if you can find someone willing to sell you crack, and you want to buy it, you should be able to do so without facing jailtime. However, this doesn't mean that I would feel okay about selling you crack myself, or that I think highly of people who are willing to sell you crack. One can agree that something is undesirable or even evil without thinking it should be illegal, and yeah, personally, I think that both encouraging another person to use a highly addictive substance and profiting from usurious loans are "evil" acts, even though I don't think either one should be illegal.

adamtj 16y ago

Everybody knows payday loan providers are predatory sharks preying on the poor and helpless. The problem is, how do you distinguish them from the saintly providers of short-term emergency loans? Short-term emergency loans can make dramatic differences in the lives of the poor and helpless. They can help people "get over the hump", so to speak, and prevent utter disaster. Unfortunately, people who need such loans often default, resulting in high interest rates. Also unfortunate is that many people live their lives in a state of near-constant emergency. But what can you do? The constancy of their emergencies doesn't make them any less bad. http://en.wikipedia.org/wiki/If_by_whiskey http://en.wikipedia.org/wiki/If_by_whiskey