TIL there are more payday loan stores in the US than there are Starbucks or McDonald’s.

submitted by theFriendlyDoomer from (research.stlouisfed.org)

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[–]magnora7 4 insightful - 1 fun4 insightful - 0 fun5 insightful - 1 fun -  (3 children)

Actually I mispoke, the real rates are much higher:

APR ranges from 391% to more than 521% for payday loans.

According to google. I think the limit should be about 10% APR per year. Beyond that it just begins creating systemic financial risks that lead to things like the financial crisis of 2008. But I see your point about it being a symptom of a deeper problem.

[–]Trajan 4 insightful - 1 fun4 insightful - 0 fun5 insightful - 1 fun -  (2 children)

The problem with 10% APR is that for a loan duration measured in weeks this would be a tiny rate of interest. That’d be lower than credit cards, and they have far more stringent vetting processes by virtue of their business model. Payday lenders have far less vetting and a quicker decision. Those APR

I’d definitely support creating a cap where loans are rolled over to run for months as opposed to weeks. Maybe a cap tied to a multiple of the principal so that the total amount owed can’t exceed that? To me the system is broken where you can borrow $100 for a week and end up owing $1000.

[–]C3P0 4 insightful - 1 fun4 insightful - 0 fun5 insightful - 1 fun -  (1 child)

The problem with 10% APR is that for a loan duration measured in weeks this would be a tiny rate of interest.

10% Annual Percentage Rate is the same "rate" no matter if it is for a week, a month, or twelve years.

[–]Trajan 2 insightful - 1 fun2 insightful - 0 fun3 insightful - 1 fun -  (0 children)

Yeah, it would be, but still a low rate given this is unsecured debt incurred for perhaps a few weeks at a time. Add in the reduced compounding and payday lending isn’t very economical for lenders.