Paday Loan - Get your's

What's the recent legislative change that has brought this sort of sub-prime loan to both daytime TV, and off charter posts here? Or is it

just the collapse of the secured sub-prime load market?

Why can't you spell correctly? 'Your's' should be 'yours' - like his and hers.

Rob Graham

What's the recent legislative change that has brought this sort of sub-prime loan to both daytime TV, and off charter posts here? Or is it just the collapse of the secured sub-prime load market?

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I imagine it's more the rise of the un(der)employed.

The same reason why we have "buy your gold" adverts.

tim

I guess the only change I can think of is that they have been banned in some parts of the US, so they are looking to move abroad. Then other people see that they can lend money at rates in excess of 10,000,000% APR[1] and decide to have a slice of the action themselves.

[1] 25% per week is about 10,947,544.25% per year.

Usually when one says "about" (in the sense of approximately), one implies something about the maximum likely error. By giving a figure, as you have, ending in ".25" you're inviting us to infer that the true value is unlikely to differ from your approximation by more than, depending on how you look at it, 0.005 (if you mean nearer .25 than .24 or .26), 0.025 (if you mean nearer .25 than .20 or .30), or 0.125 (if you mean nearer .25 than .00 or .50) so it's a pity when the value you *meant* to state actually differs by rather more than that as a result of your copying the number incorrectly from your calculator (the 5 in the middle should be a 6).

The (more) true value in fact differs by about 350,000 because you ought to have used 365/7 week years instead of 52 week years.

So I'd make it about 11,302,000%pa. Even that's too precise given that our starting values were given to at most 3 places. We could just agree on "about 11 million percent". Or even 10 million.

But do they really charge 25% per week? What if your'e paid monthly and next payday is 4 weeks away? Not much use if you can only borrow 40% of your next pay packet, since all of that packet will then be needed to settle the loan account, and you need to eke out those 40% to last you more than 8 weeks.

"Ronald Raygun" wrote

Isn't 5 correct, for 52 weeks?

"Ronald Raygun" wrote

Shouldn't it be more like 11,390,000%pa?

"Ronald Raygun" wrote

Oh, so it is. I apologise. I forgot that I needed to subtract 100%.

Not for the 365 day years I mentioned, but if you want to average over leap year cycles, then yes. Nice that the approximation works irrespective of whether you use the 4, 100, or 400 year cycle. At least it does if you mean 1.139E7 as opposed to 1.1390E7. Unfortunately the notation hides the intended precision, because you can't tell how many of the trailing zeroes are significant.

"Ronald Raygun" wrote

"Ronald Raygun" wrote

The precision was (deliberately) intended to be ambiguous! ;-)

"Ronald Raygun" wrote

I loved

"They're charging you 94% actual interest over 5 years whereas we're only charging you 25% of the amount you borrowed over 30 days, borrow from us, you know it makes sense".

Does ANYONE actually use these monkeys?

I suspected as much. That's why I remarked upon it.

I don't understand why you added "(deliberately)"; it seems to me that "intended" already implies this. It seems unlike you to stoop to using tautology for effect. Is the election getting to you?

"Ronald Raygun" wrote

I was thinking along the lines of "...the intended precision was deliberately ambiguous..." ;-)

[The 'intended precision' being the object on which the ambiguity was deliberate.]

"Ronald Raygun" wrote

Getting bored with it now. Perhaps we need some new choices?!!

I'm sure no-one reading this does, but I'm sure lots of desperate or innumerate people do.

Of course these apr's are meaningless over short term loans. If I said to you that if you'd lend me a quid to get a shopping trolley to go round Tesco's, and I'd pay you back by buying you a pint at lunchtime, what sort of apr is that?

The reason for the buy your gold adverts is that the gold price has increased considerably in the past year or so, and there is a lot of demand for gold from speculators.

Seeing as you won't get much change out of £3 for a pint around these parts, I'd snap your hand off.........and the APR would be minus summut or other........

"Jonathan Bryce" wrote

Here's something that seems interesting (well, to me at least...)

A loan of 100, paid back a month later at 125, has an APR of 1355% (let's hope I got that right!!).

Imagine another loan where a 25 fee is paid first, then the loan of 100 is given half-a-month later, which is then paid back at 100 one month after that (1.5 months after the fee was paid).

Question: What is the APR - and why?

Agreed.

The APR rules don't distinguish between fees and interest, so the £25 fee is really interest deposited into the loan account in advance. We must consider the account balance as growing at the same interest rate whether it is in credit or debit. So at time 0 the loan account stands at -£25 and it will grow to reach -k*£25 at time 0.5 months. In other words k is the half-monthly rate.

At this point, £100 is advanced and the loan account then stands at £100-k*£25. This debt then grows exponentially to reach £100 one month later, at time 1.5 months, so that paying in £100 then would clear the account balance. In two half months it grows by a factor of k^2.

So k^2*(£100 - k*£25) must equal £100, or 4k^2 - k^3 = 4.

I'm not clever enough to solve this analytically, but numerically I get k = 1.1939366, which means the interest rate is 19.4% per half month, or 42.5% per month, and the APR is 6940%.

It might seem remarkable that 6940% is so much more than 1355%, but it's not really particularly interesting. Not enough for you, at any rate.

A cubic equation generally has at least one real solution but can have up to three, and this one has!

There's one solution with k=3.70928, which makes the interest rate

271% per half month, 1276% per month, an APR of 4.6 quadrillion %. In the first half-month the £25 deposit grows to £92.73, so that the advance of £100 takes the account to £7.27, which debt then grows to £100 in the next two half-months.

There's a third solution with k=-0.9032, an interest rate of -190% per half-month, but that becomes -18.4% per month so the APR is -91.3%. Not particularly realistic. Every half month the account balance changes sign, so the initial credit of £25 becomes a debt of £22.58, and after the advance this is £122.58. After another half month it becomes a credit of £110.71 and after another it's a debt of £100. No point paying it off, though. Just wait another half month and then cash in the £90.32 credit. Better still, cash it in half a month early instead of half a month late. How to turn £25 into £210.71 in just one month! It should be on TV! An AER of about 12.9 trillion %, I think.

"Ronald Raygun" wrote

Phew!

"Ronald Raygun" wrote

Ah, shucks - you know me so well!

"Ronald Raygun" wrote

Well done for finding that one!!

"Ronald Raygun" wrote

Very good! - but what happens "in-between" each half month?

"Ronald Raygun" wrote

I think it's actually more like 3.7 quintillion % !! You get 100 after just half-a-month, then another 110.71 after another half-a-month, rather than 210.71 after one month). [k = 4.90.]

So ... is the APR: +6940%, +4.6 quadrillion %, -91.3%, or

+/-12.9 trillion % or +/-3.7 quintillion % ??

I mean, what would need to be quoted by law for a loan of this type?

Nothing. I could just shrug and say it's undefined there. But I guess the balance must follow an exponential spiral in the complex plane, and so takes real values (i.e. the imaginary part is zero) only at integer multiples of half months.

How? Having taken the £100 part-way through, there's nothing you can do with it (unless you want to use it as fees for 4 new accounts, but is that allowed?) other than put it to one side, and so in practice (practice? ha!) you *do* get £210.71 after one month.

Well, since the lender would be unlikely to let the borrower close the account except at the originally agreed time, the last two are out (they are in any case AERs, not APRs). I don't think the law says (or indeed knows) anything about non-unique solutions to the equations they say the APR must satisfy. Accordingly, I'd assume they'd let the lender pick any one of the first three. The second one is clearly unattractive from a marketing point of view, so no-one would want to use it anyway. The first is the safe option, but the third might have some good marketing potential, and one might just get away with it.

"Ronald Raygun" wrote

Yes, but is the fact that it is "undefined" for more time than it is "real" a problem? ...

"Ooops - I missed the payment date - we'll have to wait for it to come around again!!"

"Ronald Raygun" wrote

With a more "normal" savings a/c, when interest is paid out monthly, the AER rules specify compounding don't they?

Eg Save 100, get 0.50 at the end of each month and 100 at the end of the year. AER isn't 6.00%, it's more like 6.17%, isn't it?

"Ronald Raygun" wrote

Really? I had hoped that the legislation might be a bit more specific, so that the "rate to be disclosed" couldn't be ambiguous.

"Ronald Raygun" wrote

But couldn't a consumer then argue that their marketing was misleading?