few beneficiaries from rate caps on cash advance companies

More states are putting rate caps on cash advances. Keeping people from paying too much is basically the idea. That said, the wrong standard of interest is generally applied. A 2 week loan doesn’t qualify as APR. Nearly half of all cash advance loan lenders are small company owners, and their margins are being constrained.

Bad math on the cash advance rate cap

States have started introducing numerous interest rate caps on loans. Typically about a 36 percent APR on cash advances is where the cap lies. There are some issues with a 36 percent cap despite the fact that it may seem logical. APR can't be something that is calculated on a cash today or payday loan. A loan that only has two weeks at the most to mature shouldn't be considered under the Annualized Percentage Rates. Let's say a loan lender lends $100. Say the charge is $20. The APR would be 240 percent if the $20 charge was compounded once a month. A compound every two weeks would be even more with that $20. It would end up being about 480 percent APR. It is only 20 percent interest though for the $20 to be charged for the $100 in simple interest.

Don't forget Cui Bono

"Who Benefits?" is what "cui bono" means in Latin. Unsecured personal 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 loan advances. This is all with an APR standard there. Payday advance looks much better though when considering the total amount a person pays back in simple interest vs. a credit card.

Seeing bad price ceilings again

A business charging only a certain amount with a cap is what rate caps are as price ceilings. The margin for profit is reduced. This leaves consumers struggling to benefit from price competition which should be there. About 50 percent of all payday advance loan store owners are independent small business owners, not giant corporations. Is that who should be punished in this economy? The Payday loans Facts and Statistics Record on Personal Money Store is where you are able to find more information.