What is the APR?Cash advances and payday loans are short term borrowings available at a fixed interest rate and offered as an alternative to credit cards. The Annual Percentage Rate describes the costs of the loan in annual terms.Although payday loans are short-term advances intended to be paid off quickly, the law requires financial disclosures to be expressed as an Annual Percentage Rate (APR), or the cost of the credit expressed as an annual rate. This requirement provides uniformity among various credit sources, so customers can compare rates and make the choice that is right for them.The Annual Percentage Rate (APR) will vary depending on the number of days that pass between the date the customer receive their advance and the day they repay the loan. The term of the loan begins when the funds arrive in their bank account, so when selecting the Number of Days, make sure to subtract appropriate time for the loan request and fund-disbursement processing (usually 1 to 3 days)10 reasons why the APR can be seen as an unsuitable guideline and entirely inflated:A great deal of confusion and misunderstanding surrounds payday lending. From outside the industry, critics see high Annual Percentage Rates (APR’s) and accuse payday lenders of ‘predatory’ lending practices at the expense of consumer welfare.We strongly believe that the APR is negligible as it does not disclose the fact that many people don’t mind paying $23 to borrow $100 now which will save them from incurring further fees or from an embarrassing situation. Not to mention that these people have no other finance options other than micro lenders.These people are made to believe they are paying exorbitant rates, however, it is important to understand that the APR does not consider:1. The size of the loan: The costs of providing a small of $200 or a large loan of $200,000 are very similar. Small lenders still need the same staff, programs and equipment. However, a larger loan principal allows the lender to recover more costs in a more discrete way. That is, the APR appears lower in proportion to the loan amount borrowed. Yet 10% of a $200 loan $20, whereas 10% of a $200,000 loan is $20,000. Who earns more? Regardless, the two lenders are still judged on the same grounds.2. The length of the loan: Larger loans that run for 5-30 years are able to collect interest over longer periods of time which lowers their Annual Percentage Rate. Although in actual fact they recoup anywhere up to 100% interest whereas payday lenders only charge approx 23% as a percentage fee.3. Convenience premium: When the costs of the credit provisions are considered, service providers that offer final approval just one hour after applying, such as ourselves, have to hire additional staff and utilize resources in the most cost effective way. Unlike other financial institutions that leave customers waiting for up to 10 days whilst they process the application, we hire more staff and increase our investments in efficiency which must then be translated into a convenience premium.4. Risk: The payday lending industry is riskier than most other financial sectors and institutional ventures as we provide loans to clients who often have credit rating concerns.5. Value: It is far more valuable to our clients to receive $100 today and repay $123 on their next payday when they have the money available. It’s the same with families who borrow $250,000 for their family home and end up paying back $500,000 thirty years later. Our applicants use our fees as the real price signal- They don’t make decisions based on the APR which disregards the difference between a one month loan and a thirty year loan.6. Demand Discounts: Clients who borrow more are offered a lower interest rate for one reason- the costs of providing a larger loan is the same as providing a smaller one. Also, if you are acquainted the Supply = Demand theorem, those who borrow more are privy to lower interest rates whilst those who borrow less pay higher premiums.7. Maintenance Fees: The APR does not disclose any late fees or maintenance fees that can be incurred during the life of a loan. Often these fees result in financial institutions overstepping the current legislation. This too can be said for the big 4 banks.8. Acceptance and compliance: There is a great deal of confusion between corporate entities as to whether they comply with the regulations, and very few resources available to aid in their disclosure processes. As a result, many do not disclose their APR or do so incorrectly.9. Academic Criticisms: Many academics have openly criticized current legislation’s as ineffective scare tactics which reduce competition and hurt the ‘Mums and Dads’ in society.10. Payday loans don’t last an entire year: Payday applicants only borrow up to their next paydays so will never end up borrowing for an entire year. Therefore, they will never end up paying anything close to the APR.Some payday loan clients (as with all other financial services) face numerous financial difficulties independent of the payday lending industryBy bridging the gap between paydays we aid our customers in reducing dishonor fees and overdrawn account fees. Further, Payday lenders aid households in reducing fluctuations in their standard of living and help maintain consumption. After all, high default rates = reduced profit = reduced funds to re lend = operating cost not met = bankruptcy. It is in our best commercial interest to lend to applicants who can repay the loan rather than crippling our own cash flow.10 ways Financier aims to reduce predatory lending practices:1. We only lend to individuals earning at least net $500/week
2. We perform credit checks to confirm the applicant’s financial standing
3. We do not lend to pensioners
4. We do not lend to bankrupts
5. We do not lend to contractors or the self employed
6. The average age of our clients is 34
7. The average salary of a client is $33,000
8. Financier restructures loans for up to 3 months to aid in repayment should a person fall into
financial difficulty. No further penalties are charged.
9. We will not adversely affect a customer’s credit at first sign of trouble; rather we will work with the person and only list a default if the person is unreachable.
10. We provide a positive, transparent and sophisticated environment for our online borrowers.