6 ms·

And they weren't even taken down for being a loan shark, where they can make over 600% interest in some states. https://www.cnbc.com/2021/02/16/map-shows-typic

And they weren't even taken down for being a loan shark, where they can make over 600% interest in some states. https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loan-rate-in-each-state.html https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loa...

pc86 5y ago
Is it really fair to calculate an annual interest rate when the loan term in question 14 days (literally one payday)? I'm not defending payday loans but it seems like an intentionally skewed comparison when you're looking at installment loans of terms in the years or something revolving like a credit card.
- joe-collins 5y ago
  If you shy away from defending payday loans, you may be aware of how easily those loans can "get away" from their financially-unstable borrowers and turn into longer-term cash sinks. In light of that, how is it not fair to consider the interest rate over a longer period?
- AlexandrB 5y ago
  APR is the financial equivalent of those labels in the grocery store that give price/100g (or price/oz if you prefer). It allows you to compare the cost of borrowing money across a range of products regardless of a loan's duration, compounding frequency, or non-interest fees. So yes, it's very fair.
  - ahmedfromtunis 5y ago
    Not the OP but I always fail to see how this is useful in the real world (I'm sure you already guessed I'm no financial guru). Can someone please explain why isn't this akin to comparing the price of a gallon of water to that of printer ink and then thinking: "hmm, the water is way cheaper. I'll take a dozen of bottles, yet I'll be spending less."?
    - AlexandrB 5y ago
      I gave an example in another comment: https://news.ycombinator.com/item?id=29656265 https://news.ycombinator.com/item?id=29656265 Because the thing you're buying is short term, unsecured credit, it's generally pretty fungible. Regardless of the credit product - payday loan, credit card, line of credit, or something else - what you're paying for is immediate access to money. And in most cases, these products allow you to borrow as much (or as little) as you want - so you're not going to "overborrow". This is more like comparing the cost of buying 30L of water in 330ml containers for $2/ea vs. in 481ml containers for $3/ea except the math for compound interest is harder to do correctly.
    - sofixa 5y ago
      The point is to have an equal point of comparison (APR or gallon or 100ml or whatever), so that the vendor can't trick you with numbers - e.g. a bottle of Fanta is 3 bolivars, a bottle of Sprite 3.5 bolivars, but the first one is 85ml, the second one 100ml. Most people wouldn't be able to do the math even if they immediately notice the difference in size/quantity. Same thing with interest. Unless it's normalised ( in a yearly equivalent), it's very hard to know how expensive the loan will be. That's why in France it's mandatory when advertising loans to state the yearly interest rate and the total amount paid in the end, just to be clear what you're getting into.
  - tzs 5y ago
    A $100 loan that I have to pay back the next day for $101 has an APR of 365%. A $100 that I don't have to pay back until one year later for $200 has an APR of 100%. I fail to see how APR is useful in any way whatsoever when comparing those two loans.
    - halpert 5y ago
      Unless you’re entering an agreement where you MUST wait a year before paying the second loan off, it absolutely makes sense to compare the APR of those two loans. If you could pay the second loan after a day, you would save money.
- Karunamon 5y ago
  It is not fair, nor is it reasonable. It's about as useful a metric as the weather forecast being provided in degrees kelvin. As someone that's had their ass saved by payday loans a couple times, I'll gladly defend them every day of the week and twice Sunday. At no point was I ever unclear about payback schedules, the cost of the financing, penalties, any of it, and neither is anyone else with the financial literacy to have a bank account, a job, and regular paychecks/deposits, all of which are a requirement from your average lender.
  - AlexandrB 5y ago
    You need to borrow $200 for 60 days. Is it cheaper to do so for a flat $10 fee on repayment or by using a credit card with an APR of 20% (compounded monthly)? I can't do the math to answer this question in my head. I suspect you can't either. The point of normalizing the cost of borrowing money to an APR is so that a consumer can make this decision without having to solve exponential equations.
    - Karunamon 5y ago
      If I had a credit card with a limit large enough for the need, I wouldn't be even thinking about payday loans in the first place. This hypothetical doesn't happen in the real world; there's no time where even the most awful subprime credit card (even at cash advance rates!) will be cheaper than a payday loan. Its usefulness as a metric for a loan intended to be held for a couple of weeks to a month is very limited. Maybe when shopping across short-term lenders, but at that point, it's more intuitive to think in terms of how much the fee is in absolute terms.
- dragontamer 5y ago
  > Is it really fair to calculate an annual interest rate when the loan term in question 14 days (literally one payday)? Yes. Because annual interest rates are the standard of this country. That means you compare the interest rates apples-to-apples. My credit card is 13% annual rate, even if I only ever borrow money for 30-days at the max. Comparing this platform vs my credit card on an apples-to-apples basis (APY) is just fair.
  - emodendroket 5y ago
    In the case of the credit card you don't ever have to pay any interest if you pay within 30 days; can't say that for the payday loans.
    - AlexandrB 5y ago
      That's only true if you're using your credit card to buy stuff. If you withdraw cash from your credit card at an ATM you start accruing interest immediately; at least on every credit card I've ever owned.
      - emodendroket 5y ago
        You're right. Cash advances are generally not on very favorable terms.
      - simplestats 5y ago
        Yeah but the point of withdrawing cash is to buy stuff. Credit card checks can also be used in many cases where credit cards cannot, and those don't always have the fee or immediate interest of cash advances.
- deleted 5y ago
  [deleted]
- dkjaudyeqooe 5y ago
  Yes, it's a standard measure so you can easily compare interest rates. Why shouldn't consumers be able to easily compare rates other than making it easier to mislead them? Arguably not proving an APR is an "intentionally skewed comparison."
- nlh 5y ago
  I'm going to disagree with the sibling responses here and agree with your premise - I actually think in some cases it's not fair to calculate APR for short term, low value loans. Here's why: There's a transaction cost with making a loan - paperwork, time, etc., and in many cases that transaction cost doesn't scale with the loan size. Example to illustrate: Let's say I ask you for a personal loan. If I need $100,000 and I want to pay you back over a few years, let's say you charge me 5% APR. You write me a check and you can roughly count on the fact that I'm going to pay you ~$5,000 a year for the service. I get the money I need, you make a nice return, we're both happy. Now let's say I need $100 for a week. If you charged me the same 5% APR, that means I pay you back about $100.096 next week. Is it worth it? Pretty good deal for me - I'm happy to get a week's usage of $100 and it only cost me a dime. Pretty bad deal for you - and in fact, I expect you wouldn't want to even do the deal. Not worth the risk! So what do you charge me? What's it worth to hand me a $100 and hope you'll get it back in a week? $1? Still pretty low - and that's 52% APR! $5? Getting closer - now you can buy a beer or two at the bar next week. But that's 260%! $10? Now we're at 520% APR. It doesn't really scale at low numbers.
  - wbc 5y ago
    these amounts (10, 50, 100, w/e) are being lent on a minute by minute basis and are paid back in a week: https://www.kucoin.com/margin/lend/USDT https://www.kucoin.com/margin/lend/USDT USD transaction cost might be too high if the technology doesn't exist
  - simplestats 5y ago
    I agree that one single metric like APR is not sufficient to compare all possible cases of lending without making some options to look worse than they really are. But if you were a safe enough borrower to even get a $100k loan, then you're sfe to loan $100 to for a tiny return also. Payday loans probably tend to be for people who can't get better loans of any size.
deleted 5y ago
[deleted]

pc86 5y ago

Is it really fair to calculate an annual interest rate when the loan term in question 14 days (literally one payday)? I'm not defending payday loans but it seems like an intentionally skewed comparison when you're looking at installment loans of terms in the years or something revolving like a credit card.

joe-collins 5y ago
If you shy away from defending payday loans, you may be aware of how easily those loans can "get away" from their financially-unstable borrowers and turn into longer-term cash sinks. In light of that, how is it not fair to consider the interest rate over a longer period?
AlexandrB 5y ago
APR is the financial equivalent of those labels in the grocery store that give price/100g (or price/oz if you prefer). It allows you to compare the cost of borrowing money across a range of products regardless of a loan's duration, compounding frequency, or non-interest fees. So yes, it's very fair.
- ahmedfromtunis 5y ago
  Not the OP but I always fail to see how this is useful in the real world (I'm sure you already guessed I'm no financial guru). Can someone please explain why isn't this akin to comparing the price of a gallon of water to that of printer ink and then thinking: "hmm, the water is way cheaper. I'll take a dozen of bottles, yet I'll be spending less."?
  - AlexandrB 5y ago
    I gave an example in another comment: https://news.ycombinator.com/item?id=29656265 https://news.ycombinator.com/item?id=29656265 Because the thing you're buying is short term, unsecured credit, it's generally pretty fungible. Regardless of the credit product - payday loan, credit card, line of credit, or something else - what you're paying for is immediate access to money. And in most cases, these products allow you to borrow as much (or as little) as you want - so you're not going to "overborrow". This is more like comparing the cost of buying 30L of water in 330ml containers for $2/ea vs. in 481ml containers for $3/ea except the math for compound interest is harder to do correctly.
  - sofixa 5y ago
    The point is to have an equal point of comparison (APR or gallon or 100ml or whatever), so that the vendor can't trick you with numbers - e.g. a bottle of Fanta is 3 bolivars, a bottle of Sprite 3.5 bolivars, but the first one is 85ml, the second one 100ml. Most people wouldn't be able to do the math even if they immediately notice the difference in size/quantity. Same thing with interest. Unless it's normalised ( in a yearly equivalent), it's very hard to know how expensive the loan will be. That's why in France it's mandatory when advertising loans to state the yearly interest rate and the total amount paid in the end, just to be clear what you're getting into.
- tzs 5y ago
  A $100 loan that I have to pay back the next day for $101 has an APR of 365%. A $100 that I don't have to pay back until one year later for $200 has an APR of 100%. I fail to see how APR is useful in any way whatsoever when comparing those two loans.
  - halpert 5y ago
    Unless you’re entering an agreement where you MUST wait a year before paying the second loan off, it absolutely makes sense to compare the APR of those two loans. If you could pay the second loan after a day, you would save money.
Karunamon 5y ago
It is not fair, nor is it reasonable. It's about as useful a metric as the weather forecast being provided in degrees kelvin. As someone that's had their ass saved by payday loans a couple times, I'll gladly defend them every day of the week and twice Sunday. At no point was I ever unclear about payback schedules, the cost of the financing, penalties, any of it, and neither is anyone else with the financial literacy to have a bank account, a job, and regular paychecks/deposits, all of which are a requirement from your average lender.
- AlexandrB 5y ago
  You need to borrow $200 for 60 days. Is it cheaper to do so for a flat $10 fee on repayment or by using a credit card with an APR of 20% (compounded monthly)? I can't do the math to answer this question in my head. I suspect you can't either. The point of normalizing the cost of borrowing money to an APR is so that a consumer can make this decision without having to solve exponential equations.
  - Karunamon 5y ago
    If I had a credit card with a limit large enough for the need, I wouldn't be even thinking about payday loans in the first place. This hypothetical doesn't happen in the real world; there's no time where even the most awful subprime credit card (even at cash advance rates!) will be cheaper than a payday loan. Its usefulness as a metric for a loan intended to be held for a couple of weeks to a month is very limited. Maybe when shopping across short-term lenders, but at that point, it's more intuitive to think in terms of how much the fee is in absolute terms.
dragontamer 5y ago
> Is it really fair to calculate an annual interest rate when the loan term in question 14 days (literally one payday)? Yes. Because annual interest rates are the standard of this country. That means you compare the interest rates apples-to-apples. My credit card is 13% annual rate, even if I only ever borrow money for 30-days at the max. Comparing this platform vs my credit card on an apples-to-apples basis (APY) is just fair.
- emodendroket 5y ago
  In the case of the credit card you don't ever have to pay any interest if you pay within 30 days; can't say that for the payday loans.
  - AlexandrB 5y ago
    That's only true if you're using your credit card to buy stuff. If you withdraw cash from your credit card at an ATM you start accruing interest immediately; at least on every credit card I've ever owned.
    - emodendroket 5y ago
      You're right. Cash advances are generally not on very favorable terms.
    - simplestats 5y ago
      Yeah but the point of withdrawing cash is to buy stuff. Credit card checks can also be used in many cases where credit cards cannot, and those don't always have the fee or immediate interest of cash advances.
deleted 5y ago
[deleted]
dkjaudyeqooe 5y ago
Yes, it's a standard measure so you can easily compare interest rates. Why shouldn't consumers be able to easily compare rates other than making it easier to mislead them? Arguably not proving an APR is an "intentionally skewed comparison."
nlh 5y ago
I'm going to disagree with the sibling responses here and agree with your premise - I actually think in some cases it's not fair to calculate APR for short term, low value loans. Here's why: There's a transaction cost with making a loan - paperwork, time, etc., and in many cases that transaction cost doesn't scale with the loan size. Example to illustrate: Let's say I ask you for a personal loan. If I need $100,000 and I want to pay you back over a few years, let's say you charge me 5% APR. You write me a check and you can roughly count on the fact that I'm going to pay you ~$5,000 a year for the service. I get the money I need, you make a nice return, we're both happy. Now let's say I need $100 for a week. If you charged me the same 5% APR, that means I pay you back about $100.096 next week. Is it worth it? Pretty good deal for me - I'm happy to get a week's usage of $100 and it only cost me a dime. Pretty bad deal for you - and in fact, I expect you wouldn't want to even do the deal. Not worth the risk! So what do you charge me? What's it worth to hand me a $100 and hope you'll get it back in a week? $1? Still pretty low - and that's 52% APR! $5? Getting closer - now you can buy a beer or two at the bar next week. But that's 260%! $10? Now we're at 520% APR. It doesn't really scale at low numbers.
- wbc 5y ago
  these amounts (10, 50, 100, w/e) are being lent on a minute by minute basis and are paid back in a week: https://www.kucoin.com/margin/lend/USDT https://www.kucoin.com/margin/lend/USDT USD transaction cost might be too high if the technology doesn't exist
- simplestats 5y ago
  I agree that one single metric like APR is not sufficient to compare all possible cases of lending without making some options to look worse than they really are. But if you were a safe enough borrower to even get a $100k loan, then you're sfe to loan $100 to for a tiny return also. Payday loans probably tend to be for people who can't get better loans of any size.

deleted 5y ago

[deleted]