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In principle, the debt market charges rates that are commensurate with the risk of repayment. Some studies[0] show a relatively high default rate for payday loa

In principle, the debt market charges rates that are commensurate with the risk of repayment. Some studies[0] show a relatively high default rate for payday loans. Moreover, the people who borrow from these facilities likely have very poor credit scores. That's not a comment on the fairness of the rate charged. But if there is a sufficient amount of competition among lenders, and they were effectively regulated and monitored, we could expect their rates are enough to allow them to make a reasonable profit in spite of the risk of default. [0] https://thehill.com/regulation/237538-borrowers-default-on-nearly-half-of-all-payday-loans-in-2-years-study-finds https://thehill.com/regulation/237538-borrowers-default-on-n...

kenniskrag 6y ago
In some country consumer credits are regulated and the interest rate is capped. Also it is not legal in some country to grant a credit if the lender cant't pay it back (e.g. in the european union)
- gambiting 6y ago
  >> Also it is not legal in some country to grant a credit if the lender cant't pay it back (e.g. in the european union European Union is not a country and every member state has their own rules regulating this, there isn't one payday lenders rulebook across the entire EU. As for what you said - it's true, except that it boils down to a checkbox on the form "are you able to make repayments on this loan?" and that's about it, that takes care of the legal side of things.