It wasn’t long ago that the payday loan was the most lucrative kind of loan for small lenders, but the Consumer Financial Protection Bureau has put paid to that with some new rules to protect uneducated consumers from “predatory lending.” Whilst we don’t agree with the CFPB that these loans are necessarily predatory, they can be abused by bad lenders who deliberately trick borrowers into rolling over the interest at very high interest rates, deliberately pushing them into a debt spiral . Normally payday loans should be repaid within 30 days and hence a horrific sounding 1300% APR would equate to 31% if repaid after 2 weeks. It still sounds high but when you realize a typical payday loan might be around 100$ the interest repayable is just 31$, and this hardly covers the cost of initiating the loan. This is why when pushed by the authorities traditional lenders have given payday lending a wide berth, stating categorically that it’s “not profitable. Regardless of whether it was profitable or not, it’s now earmarked for extinction.
Enter the Installment loan.