An exciting tit-bit in the life of a law firm employee

I'm not defending PDLs, but I do think apr's are a bit confusing and most people gawk at the rate without understanding it.

For example, you borrow $300 and they tell you 96% APR. You do a simple calculation: 96% X $300 = $288. And you think "oh my god, they are going to charge me $288 to borrow $300?!" However, that calculation would only be correct if you borrowed the money for a full year, hence Annual Percentage Rate.

How about this ... instead of starting with an APR and trying to derive a dollar value from it, let's first figure out what a 'fair price' would be. After we agree how much it should cost, then let's back our way into the APR needed to create that price.

Suppose you want to borrow $500 from me and you'll pay it back next payday (2 weeks). How much should I charge you to borrow that, keeping in mind I could invest that $500 somwhere else instead of giving it to you, so I do need to make some money off of it. ... does $35 sound fair?

Take $35/ $500 --> gives us a 14-day periodic rate of 7% . That doesn't sound so bad. But the Truth-In-Lending Act doesn't allow me to disclose a Periodic Rate on the contract ... I have to tell you what the Yearly Rate/APR is (even though you're not borrowing it for a full year). So now lets take a 7% periodic rate and turn it into an APR to comply with full legal disclosure.

To do this, we must calculate the daily rate and then multiply it by 365 to get an annual rate. 7% was for 14 days; take 7/14 and we get a daily percentage rate of .5%. Now .5% X 365 = 182.5% APR. Therefore in order to charge you $35 for two weeks on a $500 loan, I must disclose 182.5% APR on the contract, even though the effective rate for those two weeks is really only 7%.


Interest rate means nothing of itself. For a rate to have any meaning, it needs a principle balance to calculate against. From there, you get a yield.

Is 7% APR on a car loan a good rate? Most would say yes. Look at that 7% against a $15K balance, and then look at the yield. 7%/365*$15K = $2.87/day, or $40.27 interest for 14 days. You're actually paying more interest on your 7% carnote over 14 days, than you are on your 182.5% payday loan over the same duration.

Welcome to the forums Jason!

I think that Cash Call is able to loan in the manner that they do due to an excerpt in California law regarding what is called a "bona fide principal amount". I'm doing more digging, but I'll keep you updated.

Cash Call is backed by banks - They aren't a payday loan company, they do installment loans. They lend anywhere from $1500 to $10,000, and there terms are usually for 3 to 10 years. You end up paying back about 3 times what you borrowed.

Right goudah. The consumer finance loan act in CA allows for pretty minimal interest rates, but there is this exception of a bona fide principal, which allows more interest.

y my question about Cash Call though is if you borrowed $1500 and was able to pay back the $1500 in 6 mos are you still paying horrible fees