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It doesn't look like that at all. Microlending loans are a bit different than the "go to the bank and borrow $100K" loans that we are all used to. The bank does

It doesn't look like that at all. Microlending loans are a bit different than the "go to the bank and borrow $100K" loans that we are all used to. The bank doesn't charge a fee, because they make $1000s on interest on that loan over it's lifetime and it covers it. Your bank won't lend you $50 as a loan. It's not worth it for them. But if you add in some reasonable fees (like $11 for credit check report), an $11 one-time fee on a $50 loan converted to APR looks huge! 500% APR! But it's only because the amounts we are talking about are so small. I think we need to look at this more carefully and not compare apples and oranges. Big loans and small loans are different things. (And payday loans are evil. But microlending is not the same as that.)

ska 13y ago
I didn't mean that they were the same thing at all; the "page" they are borrowing is the hiding of fees and service charges behind the bold text of a "low rate". Your example is fine, by the way. Yes, that $50 is costing you 500% APR. And yes, that is exactly how you should think about it, and how they should advertise it. Anything else is problematic. It doesn't matter how the cost is arrived at, this is the cost to you of borrowing that money, and it is this entire cost that must be balanced against the value you will see from it, not any nominal rate. There is absolutely nothing wrong with doing the sort of loan they are talking about, and the costs may be perfectly reasonable too; certainly microlending is a different risk landscape that typical bank loans. However, the only ethical way to handle financial details like this is to always be as transparent as you can. Lots of sectors get this wrong, by the way -- payday loans are particularly egregious but the auto finance industry is pretty slimy on this too, in different ways. By the way, payday loans as an institution obviously meet a lot of market need that wasn't being addressed before them, or they wouldn't have popped up everywhere. I don't think they should be run out of town, but they should be honest about the costs.
- aestra 13y ago
  > but the auto finance industry is pretty slimy on this too, in different ways This is true that the auto industry (some anyways) will extend the life of your loan to make the car look cheaper. You can only afford $100 a month? Have a ten year loan! However, I was with a friend when she bought her car and on the finance agreement there was a (possibly legal requirement) box where it said clearly "this is the total amount of interest you will pay over the life of the loan." You had to sign that you got that number and that it was pointed out to you. Regulations in the US make lenders less scummy.

ska 13y ago

I didn't mean that they were the same thing at all; the "page" they are borrowing is the hiding of fees and service charges behind the bold text of a "low rate". Your example is fine, by the way. Yes, that $50 is costing you 500% APR. And yes, that is exactly how you should think about it, and how they should advertise it. Anything else is problematic. It doesn't matter how the cost is arrived at, this is the cost to you of borrowing that money, and it is this entire cost that must be balanced against the value you will see from it, not any nominal rate. There is absolutely nothing wrong with doing the sort of loan they are talking about, and the costs may be perfectly reasonable too; certainly microlending is a different risk landscape that typical bank loans. However, the only ethical way to handle financial details like this is to always be as transparent as you can. Lots of sectors get this wrong, by the way -- payday loans are particularly egregious but the auto finance industry is pretty slimy on this too, in different ways. By the way, payday loans as an institution obviously meet a lot of market need that wasn't being addressed before them, or they wouldn't have popped up everywhere. I don't think they should be run out of town, but they should be honest about the costs.

aestra 13y ago
> but the auto finance industry is pretty slimy on this too, in different ways This is true that the auto industry (some anyways) will extend the life of your loan to make the car look cheaper. You can only afford $100 a month? Have a ten year loan! However, I was with a friend when she bought her car and on the finance agreement there was a (possibly legal requirement) box where it said clearly "this is the total amount of interest you will pay over the life of the loan." You had to sign that you got that number and that it was pointed out to you. Regulations in the US make lenders less scummy.