4 ms·
APR is pretty irrelevant for payday loans. If my math is correct, even at the highest quoted 462% APR, a £100 loan for 10-days would have a fee of ~£5. Compared
by ashleyw 16y ago
APR is pretty irrelevant for payday loans. If my math is correct, even at the highest quoted 462% APR, a £100 loan for 10-days would have a fee of ~£5. Compared to ~£16 for the rest of the payday industry, that's not too bad.
In reality they're an awful source of funds if you've got other options, but that's the point, they're for people who can't get a traditional loan, and whom are most likely high-risk.
- tptacek 16y agoIt's not that simple. For people with no income, there is no ethical way to price a loan; the loan is going to blow up. Meanwhile, for people who do have incomes, there usually are better options than payday loans (credit union loans being an example). The problem is that they don't offer the convenience that a payday loan does; you can't walk into a credit union on a Thursday night at 11PM and get a loan.
- mynameishere 16y agoEven 1 day paper uses annual rates. http://www.federalreserve.gov/releases/cp/ http://www.federalreserve.gov/releases/cp/ When your cost of money is 30000 basis points, it just means that you're shifting default risk from the landlord/doctor/drug dealer to a speculator, aka "loanshark". That's why it's not so predatory as it seems. Would you rather people shaft the dentist or some asshole?
- mdda 16y agoI work in the (junk) bond markets. There's a clear distinction between Yield-to-Call paper (which is priced so that different bonds are priced based on the yields they offer) and paper that trades on a 'price basis' (i.e. recovery rates in default are a very major consideration). For the 'price based' bonds, the APR (or IRR) is a nonsense measure : because it is only considering the best outcome (payback at maturity). Most people don't understand that the high IRRs exist partly because people are bundling the price-effect of the downside case into the single 'yield' number of the best case. I don't want to defend payday loans really - just point out that Treasury Bonds and (say) Lehman bonds are two very different animals.
- jfager 16y agoThey offer a minimum loan term of 2 months, and I can't find anything saying you're allowed to pay it off early to avoid additional interest accrual.