How can they charge 300% interest?

Most states have regulation that allow for the fee. In order to offer PDL's in most of the states, you must be licensed, have a background check completded by the state and be audited on a regular basis. In order to get the license, the state will put you into the "system". It is not nearly as easy to open a legal, licensed location as most think!

Hmmmm....PDL Owner, mind if I ask you another question? Do you ever feel bad about taking advantage of desperate people, including families with kids?

munchkin130, believe me i really disagree with payday loans - they really set back my life, put me in horrible debt and caused problems i never dreamed would happen to me..
but that was harsh to say to PDLOwner, who is a regular posted and runs a legit buisness. PDLOwner often helps people dealing with illegal loans and even though I am also on the other side of this issue, it is valuable to have an insider's view about the industry.
what state are you in? in most states, they cannot charge that kind of interest.

Thanks for having my back bea, but I'll handle this...

No. The reason being is that I do not take advantage of desperate people. I provide a needed service to individuals in all walks of life. My customer range from individuals that make minimum wage to engineers and business owners that make into 6-figures. I do not force anyone to walk into my stores and apply for an advance, I advertise and open my door. We do not approve everyone that walks thru the door, we look at income and bank history. If they do not meet our criteria, we do not lend. That means that the ones that are often portrayed as our customer (the very poor or uneducated), do not qualify due to income requirements or the need for a checking account.

I don't understand why you think so little of yourself? You start by saying that you have a loan or two, then ask me if I feel guilty about "taking advantage of desperate people". Take some pride in yourself, I'm sure you are not really desperate and can fully get out of the situation that you are in.

Feel free to ask more. You and others may not like my answers, but I will do my best to be honest.

Didn't mean to offend - truly - and I'm sorry for doing so.

But in all honesty, I think it's a legitimate question and I was interested in PDL Owner's feedback. I'm not trying to start an argument & I'm glad PDL Owner posts here to help.

I live in IL & someone told me the interest rate is 300%. IMO this a clear indication that these PDL owners are taking advantage of people in a harsh economy. Please don't take this the wrong way - I'm not trying to be rude - but just because it's a legitimate business doesn't mean it's an honorable one. PDL's are like legal loan sharks.

I don't think little of myself & am unsure what prompted that comment. I stated that I had taken PDL's out in the past - back in 2000 due to divorce, no child-support, and some major car repairs that I needed to take care of so I could get to work everyday.

I just think that PDL owners could make just as much money charging less interest, but they charge as much as they can get. Maybe PDL Owner does not, but most of the do, and so I was curious for PDL's input - that's all.

You need to consider that the APR is only a mathematical calculation based on a time-price differential. The APR by itself is meaningless until you factor in time.

Federal law requires that an "Annual" Percentage Rate be disclosed, but the fact is that payday loans are not taken for a full year. So the APR really is misleading to the consumer.

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Let me make that point by mathematical example:

Suppose you want to borrow $500 from me for two weeks. Keeping in mind that there is a cost associated with the convenience of borrowing money, I will ask what is a fair amount to charge for a two week loan --- $50 ??? Not even considering APR, would you agree to pay $50 to borrow $500 for two weeks? That doesn't seem too unreasonable to me, considering that states that have passed PDL laws generally allow about $15 per hundred borrowed (or in this case $75).

Assuming that is acceptable and we have just agreed on the dollar value of finance charge, now lets derive the corresponding "APR", since Fed Reg Z requires us to tell you what it will cost to borrow $500 for a full year (even though in reality you're only borrowing it for two weeks).

First let us calculate a BWPR (Bi-Weekly Percentage Rate). $50 (the interest) divided by $500 (the loan advance) = 10% . You're really only paying 10% to borrow those funds for two weeks. But again, Fed laws don't let us disclose a BWPR, we have to disclose an APR. So let's turn 10% into an APR...

There's 14 days in two weeks. 10% divided by 14 = .714 %. This is your daily periodic rate (DPR), or the interest that is charged per day. (.714% x $500 = $3.57 per day in interest).

NOW to get an APR, we multiple the DPR by 365 (since there are 365 days in the year). .714% X 365 = 260.61 % APR . The contract has to disclose 260.61% APR in order to comply with Federal laws, but the resulting interest yield is only $50 for two weeks.

The misconception when people look at APR, it that you multiple the APR times loan balance to calculate the interest. Most people would take 260.61% X $500, and believe they will have to pay $1303 in interest. But that is not true ... again, because you're only borrowing for two weeks, not a full year.

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There is surmounting public interest in capping the APR at 36%. Let's look at the same $500 loan at 36% ..... (36%/365 * $500 * 14) = $6.90. At 36% APR, a PDL can only charge $6.90 on that $500 loan for two weeks.

I know we'd all love that. But the reality is that a PDL operates just like any other business -- They have income (the interest they charge) and they have expenses (payroll/telephone/rent, etc). The bottom line profit is a product of the income minus their expenses.

Also consider that PDLs don't run a credit check, and so there are a lot of people out there who "take the money and run" so to speak. Those operational losses account for a huge direct expense to the PDL. A PDL simply could not operate on that rate of return; they would be better off investing their funds elsewhere than in the public at-will. (Think about this too: If you had $500 and a choice to either put it in the bank where you know it will be safe, or loan it to some individual that you do not know -- would you be willing to risk losing that $500 on the premise that you only stand to gain $6.90 if they do pay it back?)

I will leave the moral/ethical considerations out of this, but from an operational standpoint, PDL's have to charge 200-300% APR in order to make a profit. The only way to reduce the APR they charge would be to reduce the overall loan losses and delinquency. They can only do that by being more selective in who they lend to -- ie they would have to run credit checks and only approve credit-worthy individuals. ((That's also why banks can charge 5%, because they only loan to people with perfect credit. Banks have almost no delinquency or bad debt.)) Hence, the interest a loan company must charge is proportional to the credit risk involved -- the higher the risk, the higher the rate.

Your comments about taking advantage of desperate people suggest that you don't believe a company should be allowed make a profit. I'm sorry but I disagree (and I don't own or work for a PDL), but I am a capitalist.

Debtcruncher, that was a very informative post, I think I tend to agree with you. Thanks for a new way to look at things.

Thanks Debtcruncher - your explanation certainly sheds new light on PDLs for me and answers my question.

Again - my appologies to PDL Owner. I was not trying to offend or start an arguement.

debtcruncher- thank you for that very informative post! I always knew that figuring the APR was not a straight multiplication math problem and that the shorter term loans had a ridiculous amount of APR that did'nt seem to translate to dollar amount but never knew why.

munchkin130,

No need to apolgize!! I have faught that battle from the first day that I got into the business almost 12 years ago.

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debtcruncher,

That was probably one of the best descriptions of my industry that I have seen in a long time! It would be nice to start a new thread with it and then make it a sticky, but I don't see that happening here due to the rationale.

Nice post DC :wink:

I think the problem is how to purge the system of the illegally operating PDLs without hurting or wiping out the legit businesses.

A 36% cap may hurt at first but it should send more customers to the legit PDL therefore increasing their profits

The only way to even have a chance of putting dent in the illegal lenders is to open up all states for lending and allowing a profitable fee structure. The consumer will move away from the more expensive IPDL's if there is a lower cost option. The only way to maintain a lower cost option is to create a fee structure that allow storefronts to be profitable and the 36% cap will not accomplish that.

i agree, when i applied for loans i actually tried to look up storefronts - i have heard they were cheaper at the time and it would have been much easier for me to handle them and pay it back.. however at the time i did not realize they were prohibited in my state and did not know that is why i could not find any

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A good two cents at that!!

There are more guilty parties regarding the military, but since there was a proliferation of stores outside of bases in CA, FL and the Carolina's from WAAAYY back. The "military loans" are a basic installment loan and are being "propped up" by a non-profit group.

As for your last paragraph, all thaqt has to happen for people to lose thier freedom of chioce is to let our elected officials sign a "feel good" bill. When that happens, the IPDL's will swoop in and gobble up all of the busines that they can handle. Education is a wonderful idea, but realistically the customers are fully aware of the fee structure and costs involved. They may deny it when they are questioned by an outside party or when they get in over thier head, but 95%+ are fully aware of what they are paying in the long run. That number may actually be low...

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i tend to agree with both sides.. i know what cool abyss was saying, my first payday loan ever was on an oral agreement, and i really thought that i would pay $60 on payday for me $200 loan until $260 was paid off. i realize that the math does not make sense, but to keep it short, i thought the $60 i was paying them would go towards a final balance of $260.. i literally had no idea that it did go towards the principal.
but i also know what PDL Owner is saying because I have taken loans after that one, and i obviously knew how much it works.. however i was than in the trap and was taking loans to pay off other loans :(

Unfortunatly, you cannot include the IPDL's in this conversation. They are the ones that give the industry a bad name. I can speak from a licensed lenders perspective, which is the only "documented" perspective out there.

There are also not any studies that include IPDL's, which is "good" for the industry opponents. What happens is that they are able to provide numbers from licensed lenders before regulation and after to show how they are reducing the number of loans and "helping" the consumer. The reality is that the legal lenders are being driven out of business and the IPDL's are gaining those customers and therefore are not reported in studies. It all goes "underground".

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All good post. However you are forgetting the aim of this forum, "PAY DAY LOAN HELP", not "YOUR FAULT SO WE WILL CONVICT YOU". Trust me they get that enough from the morons at the loan center when they have defaulted. I understand what you are trying to say, however it is coming off as being judgemental in a way.

The truth hurts but truth is the situation exists no matter how it arrived. And that is why we are here to help people eliminate, debt :wink: Just the same as you are helping people obtain loans. Its a service.

I am moving on now. Thanks for the words!

No judgmental intent, just views from the other side...

As crazy as it may seem, I enjoy congratulating customers that payoff and arrive at a position where they do not have to borrow. Fortunately or unfortunately, there are others that fill the void.

I agree, let's move on...

I think it's funny all this personal information is being traded freely on the internet. Who cares why you took out the loan. The question is why PDL assholes (and yes, for your "think so little of youself" remark PDL douche... you ARE ONE TOO) take advantage of people obviously in need of help and have nowhere else to turn.

I, on the other hand, handle my bills correctly, foresee any problems and plan ahead. Because of this, I have never had to use a PDL.

well good for you.now get off of your pulpit and stop preaching.

I bet this is the same poster posing as PAY YOUR BILLS. Here to pass personal judgment and conviction :evil:

Get Lost!!

Why do you always have to add your 2 cents when people are disagreeing. What a way to get points !!!!

TROLL post deleted! CA

:lol:

no,but posting in a know-it-all tone is a bad idea sparky.

He has been here for weeks posting rubbish!

Thanks!! :D :D

Keep posting trash and I will keep zapping it! :wink:

add more points for the devil boy as i can zap too.