Here's Why Payday Loan APR Doesn't Mean Squat
January 15
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Payday loan APR by Pete Low

Payday loan APR doesn't mean squat. It really doesn't. A personal loan A.P.R. (Annual Percentage Rate) is supposed to help you compare one loan with another, so you can tell which is cheaper. Like a price tag. If one personal loan APR is 15% and another is 10%, you know it'll cost less to borrow money at 10%.

The APR of any loan is never a secret, because the "Truth in Lending Act" requires every lender to disclose it, whenever they give you a loan.

You probably don't care, but have you ever read some of the things politicians say about payday loans? Bean-counters try to figure out the APR of payday loans and come up with these wild numbers. "An APR of 640%! Ooh! You're stupid! You could have borrowed that money at only 20% on a credit card. Or 7% APR on a car loan." And then they sneer at people like you and me who've ever taken out a loan at that ridiculous rate. The government puts out bulletins warning about this. Worse yet, politicians try to get payday loans outlawed in their state. And sometimes they succeed.

Are they dishonest, or just stupid? I mean, they must know what's wrong with their logic. Do they think we're too dumb to see it, or are they actually too dumb to see it?

Well, listen up, bean-counters and politicians. I'm telling you and everybody. Here's what's wrong with your logic.

It doesn't make sense to take something that lasts two weeks, and talk about it as if it lasted a year. Annual percentage rate. Annual=a year. But we're not borrowing money for a year!

In the first place, a company has to do the same work whether they're loaning money for two weeks or a year: check your ID, check your credit with Teletrack or take the extra risk if they don't, set up the bank transfers in and out, go collecting after those other people who default. Say it takes an hour of time for some employee at seven or eight bucks an hour. That's half the cost of loaning the money right there, and we haven't even started figuring the interest rate yet. If a payday loan place charged the same APR as a credit card, they'd earn $1.54 on a $200 loan and go out of business. But that's not the most important thing.

I saw a dime under a parking meter today and it took me about ten seconds to lean over and pick it up. If I picked up a dime every ten seconds for a year, I'd have $315,360. It's true! But I'm not going to pick up a dime every ten seconds. So what does it matter?

Last winter, my friend's van got stuck in the snow on a hill. A family helped us push it out of the road and let it sit in their driveway till he could come back and get it. He gave the family twenty bucks, even though they didn't want it. If he gave them twenty bucks every day for a year, he couldn't afford to drive his van. But he's not going to give them twenty bucks every day for a year.

Professors at universities have actually studied why people take out payday loans and published papers about it. But it doesn't take a genius to figure it out. When you don't have money, and you need it, you have to borrow it where you can.

You see the point? A payday loan is like getting stuck in the snow. It's worth what it's worth, because it helps you when you need it. Sure, you want to look at the cost.

Twenty dollars per hundred is cheaper than $30, so choose the loan for $20. If you could borrow on a credit card or from a friend or some other way cheaper, then geez, I bet you'd be smart enough to do it. But a payday loan APR shouldn't mean a hill of beans, even to a bean-counter.

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7:45 p.m. January 15
What you're ignoring is that people don't just take out a payday loan once. They get trapped paying that APR again and again, because they can't afford to pay it off and have to keep taking out further loans. So it's not just a one-time thing.


5:12 a.m. January 16
Usury is a sin! Anyone who charges those interest rates is breaking God's law and will be punished, either in this life or the next. "Take no usury or interest from him; but fear your God." Leviticus 25:36.


3:19 p.m. January 16
"Take no interest..." God's saying no interest at all. Got any money in a bank account that pays interest, Anonymous? Your going striaght to hell.


5:30 p.m. January 16
Oo! Another Christian hypocrit. All the payday lenders are in states where the Christians are in charge.


8:42 p.m.January 16
So, anonymous, you want to loan me some money free? No? So much for being a good Christian. Guess I'll have to get money for a new alternator from somebody else, if you'll let me.


9:21 p.m. January 16
Come on guys, don't beat up on the Christian. That's a cool map, though. I hadn't seen that. My state's full of payday lenders, but you can see where they've been outlawed. Think maybe it's not up to date for Ohio.


9:33 p.m. January 16
@"don't beat up on the Christian." Why not?

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