A Look at Consumer Borrowing

Critics of payday lending make the mistake of not looking at the big picture when it comes to credit. Instead of looking at the lending ecosystem, they get caught up in sensationalizing the APRs.

The cost of credit has to do w/ the credit worthiness of the individual and the to some degree the amount being borrowed and the term of the loan.

The biggest mistake they make is not understanding what lending options exist out there. Let’s see what the cheapest forms of credit are, up to the most expensive. We’ll order them from least expensive to most expensive and let’s just stick to unsecured.

Here’s the point, all these products are connected. They make up the unsecured credit ecosystem. If you get rid of one, it will affect the other. It’s not the product that’s good or bad, rather it’s how you use that product. This is also known as personal responsibility.

Capping rates or commoditization of the payday product is the worst thing legislators can do. This just makes things less competitive in the long run and leaves borrowers worse off.

Most people’s solution to the payday loan issue is that each person has an idea of what is “fair”. At the end of the day, fair or foul does not matter. I can’t say it better than Ayn Rand does in Atlas Shrugged, “In a capitalist society, all human relationships are voluntary. Men are free to cooperate or not, to deal with one another or not, as their own individual judgments, convictions and interests dictate.”

Please feel free to suggest any improvements to this post. It’s definitely a work in progress.