Re:Stripe Capital
by bernardom on Thursday September 05, 2019 @06:46PM
(#20891334)
This is so wrong. A payday loan is due on your next payday, no matter what. This loan flexes the term based on ability to pay.
The better analogy would be a fixed-cost loan with variable installments based on your income- a much, much friendlier loan structure for consumers.
What makes payday loans unaffordable is their structure, more than their cost. In California, a typical payday loan goes like this:
1- You write me a $300 check and date it for two weeks from now (when you get paid)
2- I give you $250 in cash
3- Two weeks later, I cash the check
If you had to borrow $250, what are the chances that you have $300 left over on your next paycheck? Zero. So really, it's:
3^- You come back to the store and say "don't cash that check, I'll get hit with a $25 overdraft fee."
4- I say "ok, give me $50 and I'll move your due date back 2 weeks."
5- You say "phew, thank goodness!"
6- Two weeks later, goto 3*
So the one-time payment is what makes it horrible. Even if they charged 0% APR and all you had due was $250, you'd still be hosed. An installment loan, though, where you pay $50 every two weeks for N months is clearly better, as proven by step 4 here.
The better analogy would be a fixed-cost loan with variable installments based on your income- a much, much friendlier loan structure for consumers.
What makes payday loans unaffordable is their structure, more than their cost. In California, a typical payday loan goes like this:
1- You write me a $300 check and date it for two weeks from now (when you get paid)
2- I give you $250 in cash
3- Two weeks later, I cash the check
If you had to borrow $250, what are the chances that you have $300 left over on your next paycheck? Zero. So really, it's:
3^- You come back to the store and say "don't cash that check, I'll get hit with a $25 overdraft fee."
4- I say "ok, give me $50 and I'll move your due date back 2 weeks."
5- You say "phew, thank goodness!"
6- Two weeks later, goto 3*
So the one-time payment is what makes it horrible. Even if they charged 0% APR and all you had due was $250, you'd still be hosed. An installment loan, though, where you pay $50 every two weeks for N months is clearly better, as proven by step 4 here.