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Payday math

October 10, 2008

How can a spokesman for a "Center for Entrepreneurial and Economic Literacy" have the audacity to state that $15 on $100 for two weeks equals 15 percent interest?

I might understand if some unscrupulous lender at a payday loan center quoted interest on a two-week basis; or if a desperate borrower believed she had actually borrowed money for 15 percent. However, a center with a name that implies it is working for economic literacy should be more responsible than to quote a two-week rate and compare it to a "normal" rate.

Mortgages, credit cards, car loans and any other loan I can think of quote interest at a yearly rate. If one calculates the example of $15 interest on a $100 loan for a two-week term, that is 360 percent interest annually! Whether or not the borrower "recklessly rolls over the loan," the interest rate is still 360 percent annually, not 15 percent.

This type of deception was used to encourage unqualified borrowers to take out sub-prime loans. I can hardly wait to use my tax dollars to bail out the payday loan centers when their loans go into "default" after they have already collected 360 percent interest on them.

Source : http://www.sltrib.com