Payday loans

Payday UK said that the typical annual percentage rate (APR) for its deals was 1,355 per cent.

Yves Smith: I was recently on an NPR show on consumer debt, and a caller said his uncle, a former loan shark who did 15 years in prison, was mystified by payday lending, particularly since he had charged only 17%.

Comments

[Flagg]

Uncle Loan Shark needed to read Mario Puzo's "The Godfather" for the priceless quote - "A lawyer with his briefcase can steal more than a hundred men with guns".

Uncle Loan Shark needed to go to law school at night and then help set up shop in some strip mall, just like the thousands that have metastisized all over the many small towns in my area of the US.

[Grant]

These types of comparisons aren't apples-to-apples. Most loans don't figure in all of the loan fees into the APR, but for some reason many do figure in all of the fees when looking at the APR for payday loans.

When lending a few hundred dollars, a $20 loan origination fee will be a big percentage. Combine that with the fact that the loan is only for a couple of weeks, that adds up to a huge APR. So when people include those fees in calculating the APR, sure, the percentage is very high. But there is a basic overhead cost to creating any loan, no matter how big or small it is. These fees go towards paying honest overhead of doing business.

If the government regulates these fees companies will no longer be able to provide this service. And it is a real service. Thankfully I've never had to get a payday loan, but if I ever do need one I'm glad to know a resource is out there to help get me through tough times.

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