Very few beneficiaries from rate caps on loan providers

Cash loan lenders get stuck with rate caps quite often these days. Keeping individuals from paying too much is essentially the idea. In reality, rate of interest caps are an unfair standard on cash loans. Interest caps also constrain the ability of loan companies, most of which are smaller businesses, for making a living.

The cash till payday rate cap uses bad math

Many states have introduced initiatives that cap interest rates on loans, aimed at capping the rate of a cash advance loans, typically at 36 percent APR. Many think this is perfectly acceptable to do. Unfortunately, a 36 percent cap has difficulties with it. First, one can hardly assess the fees on a cash til payday loan or payday cash advance loan as APR. 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. The APR would be 240 percent if the $20 charge had been compounded once a month. A compound each and every two weeks would be even more with that $20. It would end up being about 480 percent APR. Simple interest could be used at the ration of total amount paid vs. total amount borrowed. That means it is only 20 percent interest for the $100 to have a $20 fee.

The Cui Bono phase

The phrase “cui bono”, in Latin, essentially means “Who Benefits?”. Banks and credit unions are typically those who benefit in short term loans rate caps. Numerous seem to want credit cards instead of loan cash. This is all with an APR standard there. Compare simple interest between credit cards and pay day loans and you'll find something different. Pay day loan look much better here.

More terrible price ceilings

Essentially rate caps function as price ceilings, where a business has to charge no more than a certain amount. This means the margin for profit is drastically reduced, and the consumer cannot benefit from price competition. Owners of 50 percent of payday advance loan stores are small. They’re small business owners instead of giants. The economy sucks. It shouldn't be punishing these people. You can read more in the Paydayloan Facts and Statistics Report on Personal Money Store.