Very few rewards from rate caps for loan lenders

More states are putting rate caps on cash advances. It seems like a good idea. The thinking is that it will keep consumers from having to pay too much in interest. That said, the wrong standard of interest is generally applied. A two week loan doesn’t qualify as APR. Furthermore, rate caps constrain companies in an industry in which practically half of all loan providers are small company owners.

Bad math on the cash until payday loan rate cap

A cash advance loans is typically capped with a 36 percent APR with the rate of interest caps on loans states are introducing. There are some issues with a 36 percent cap even though it may seem logical. Cash til payday loan and payday loan fees are hard to calculate. The APR on these is really unreal. A loan that only has two weeks at the most to mature shouldn't be considered under the Annualized Percentage Rates. Assume a loan lender assesses a fee of $20 per $100 loaned. If that $20 fee were compounding once a month, the APR is 240 percent. The $20 fee would be 480 percent APR if it were compounded each two weeks. However a fee of $20 per $100 assessed in simple interest, or a ratio of the total amount paid back to the amount borrowed, it is only 20 percent interest.

Cui Bono

"Who Benefits?" is what "cui bono" means in Latin. Secured loans rate caps benefit only a couple of institutions. These are credit unions and banks of course. Numerous seem to want credit cards rather than cash advances. This is all with an APR standard there. Compare simple interest between credit cards and paycheck loans and you'll discover something different. Pay day loans look much better here.

More terrible price ceilings

Price ceilings are what rate caps could be compared to. The business is told it can only charge a certain amount for its product. This means that the margin for profit is drastically reduced, and also the consumer cannot benefit from price competition. Owners of 50 percent of payday cash loan stores are small. They are small business owners rather than giants. Is that who should be punished in this economy? You can read more in the Payday cash advance loan Facts and Statistics Report on Personal Money Store.