The BBB had this to say about payday lending:
“In many cases, the consumer complaints involved deals that were signed under the initial impression that they would be receiving a one-time payday loan and provided bank information to the website.”
I do not know what every lender tells or commuicates to their borrowers; but it should be common sense that if you do not pay the loan on the due date that it will extend for another period.
With this being said, maybe a product that fully amortizes, but is not more than X number of days may be a better product for the customers. Unfortunately, this is hard to do under the law in many states, so it may be moot.
Here is an example of a loan that would fully amortize. If the customer paid in full on the first due date the payoff would be the same as a similarly priced payday loan, which is about $60, in addition to the original advance.
| ANNUAL PERCENTAGE RATE The cost of your credit as a yearly rate. 388.9452% |
FINANCE CHARGE The dollar amount the credit will cost you. $125.22 |
Amount Financed The amount of credit provided to you or on your behalf. $400.00 |
Total of Payments The amount you will have paid after you have made all payments as scheduled. $525.22 |
| Your payment schedule will be: | ||
| No. of Payments: | Amount of Payments: | When Payments are Due: |
| 2 | $175.07 | Every 2 Weeks Beginning 3/20/2010 |
| 1 | $175.08 | Final Payment on 4/17/2010 |
Here is similar loan that’s one payment. This one payment if rolled over another two times will cost the borrower $180 compared to ~$130 for the an amortizing product.
| ANNUAL PERCENTAGE RATE The cost of your credit as a yearly rate. 390.0010% |
FINANCE CHARGE The dollar amount the credit will cost you. $60.00 |
Amount Financed The amount of credit provided to you or on your behalf. $400.00 |
Total of Payments The amount you will have paid after you have made all payments as scheduled. $460.00 |
| Your payment schedule will be: | ||
| No. of Payments: | Amount of Payments: | When Payments are Due: |
| 1 | $460.00 | Every 2 Weeks Beginning 3/20/2010 |
I know the industry does not like looking at the fee as “interest”, but we have to find better products for borrowers where lenders can make money.