Get the Facts About Annual Percentage Rates
What Should You Know About APR?
- APRs are NOT an Indicator of Cost in a Loan, Rather Lower Cost Loans Generally Have Higher APRs and Vice Versa
- Nevertheless, Policymakers Will Often Try to Impose APR Caps That Simply Cut Off Borrowers’ Access to Safe, Affordable, State-Regulated Loans
- With a Better Understanding of APRs, We Can Preserve Access to the Lowest Cost, Safest, and Most Affordable Loans
Essential Facts About APRs That Everyone Should Understand!
How Can Policymakers Foster Safer and Affordable Loans?
Minority and Low Income Zip Codes Lack Access to Beneficial Forms of Credit.
- Banks, Despite Federal Requirements, Have Limited Branch Locations in These Zip Codes
-
Payday Lenders, Title Loan, and Pawn Shops Have Come Into These Communities to Fill the Financial Services Void
- Every Community Deserves Access to Well-Structured Credit that Does Not Place Them in a Cycle of Debt
Don’t Take Our Word For It. Here’s The Fed.
The Federal Reserve Studied the Cost Structure of Consumer Finance Companies and Its Implications for Interest Rates
- This article examines the relationship of loan amount and break-even annual percentage rates and the implications of this relationship for rates and credit availability.
- While larger loan amounts have much lower interest rates than smaller amounts, larger loans carry more significant interest payments and a long period of debt. Also, consumers may not qualify for larger loan amounts.
- If rate ceilings constrain small loan revenue, only large loans will be provided. Consumers who need a small loan or only qualify for a small loan would not be served.
What About Those Opinion Polls?
What Would Happen If We Imposed a $5 Cap on the Price of a Steak?
Sure Sounds Good!
What If We Imposed a $5 Cap on the Price of a Steak?
- No Restaurant Could Afford to Buy the Meat, Pay the Rent and Utilities and Pay the Staff to Cook, Serve, and Clean
- A $5 Cap on the Price of a Steak Would NOT Mean Cheap Steak for All. It Would Mean NO Steak
- People Who Work in Restaurants and on Ranches Would Lose Their Jobs
-
In the Same Way, a 36% APR Rate Cap Would Not Lead to Inexpensive Loans. It Would Mean NO Availability of Under $5,000
If You Ask The Question One Way, Leaving Out Critical Information, You'll Get One Answer.
If You Ask The Question Another Way, Including Critical Information, You'll Get Another Answer.
Don't Trust Opinion Polls Where the Question Asked Leaves Out Critical Information!
Don't Take Our Word: Listen to the Experts!
Consultative Group to Assist the Poor
“Interest rate ceilings hurt poor people by making it harder for them to get credit. Making many small loans costs more than making a few large ones. Interest rate ceilings prevent microfinance institutions from covering their costs, and thereby choke off the supply of credit for poor people.”
Financial Health Network
"Much of the debate about small-dollar credit has heretofore focused on price, as expressed in Annual Percentage Rates (APR), as a primary determinant of quality. While affordable prices are certainly one aspect of high-quality small-dollar loans, what is “affordable” to any given borrower depends on many factors, including the loan’s size, repayment period, interest rate and fees, as well as the individual borrower’s unique financial situation….”
Consumers' Research
“...the proposed rate cap would likely eliminate the installment lending market, as well. Installment loans, which have average annual interest rates of 40 to 90 percent, represent the closest alternative to payday loans. They are used by an estimated 10 million consumers each year.”
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