I'm not defending payday loans but it seems like an intentionally skewed comparison when you're looking at installment loans of terms in the years or something revolving like a credit card.
Can someone please explain why isn't this akin to comparing the price of a gallon of water to that of printer ink and then thinking: "hmm, the water is way cheaper. I'll take a dozen of bottles, yet I'll be spending less."?
Same thing with interest. Unless it's normalised ( in a yearly equivalent), it's very hard to know how expensive the loan will be. That's why in France it's mandatory when advertising loans to state the yearly interest rate and the total amount paid in the end, just to be clear what you're getting into.
Because the thing you're buying is short term, unsecured credit, it's generally pretty fungible. Regardless of the credit product - payday loan, credit card, line of credit, or something else - what you're paying for is immediate access to money. And in most cases, these products allow you to borrow as much (or as little) as you want - so you're not going to "overborrow". This is more like comparing the cost of buying 30L of water in 330ml containers for $2/ea vs. in 481ml containers for $3/ea except the math for compound interest is harder to do correctly.
A $100 that I don't have to pay back until one year later for $200 has an APR of 100%.
I fail to see how APR is useful in any way whatsoever when comparing those two loans.
Yes. Because annual interest rates are the standard of this country. That means you compare the interest rates apples-to-apples.
My credit card is 13% annual rate, even if I only ever borrow money for 30-days at the max. Comparing this platform vs my credit card on an apples-to-apples basis (APY) is just fair.
Credit card checks can also be used in many cases where credit cards cannot, and those don't always have the fee or immediate interest of cash advances.
Why shouldn't consumers be able to easily compare rates other than making it easier to mislead them? Arguably not proving an APR is an "intentionally skewed comparison."
Example to illustrate: Let's say I ask you for a personal loan. If I need $100,000 and I want to pay you back over a few years, let's say you charge me 5% APR. You write me a check and you can roughly count on the fact that I'm going to pay you ~$5,000 a year for the service. I get the money I need, you make a nice return, we're both happy.
Now let's say I need $100 for a week. If you charged me the same 5% APR, that means I pay you back about $100.096 next week. Is it worth it? Pretty good deal for me - I'm happy to get a week's usage of $100 and it only cost me a dime. Pretty bad deal for you - and in fact, I expect you wouldn't want to even do the deal. Not worth the risk!
So what do you charge me? What's it worth to hand me a $100 and hope you'll get it back in a week? $1? Still pretty low - and that's 52% APR! $5? Getting closer - now you can buy a beer or two at the bar next week. But that's 260%! $10? Now we're at 520% APR.
It doesn't really scale at low numbers.
But if you were a safe enough borrower to even get a $100k loan, then you're sfe to loan $100 to for a tiny return also. Payday loans probably tend to be for people who can't get better loans of any size.
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As someone that's had their ass saved by payday loans a couple times, I'll gladly defend them every day of the week and twice Sunday. At no point was I ever unclear about payback schedules, the cost of the financing, penalties, any of it, and neither is anyone else with the financial literacy to have a bank account, a job, and regular paychecks/deposits, all of which are a requirement from your average lender.
I can't do the math to answer this question in my head. I suspect you can't either. The point of normalizing the cost of borrowing money to an APR is so that a consumer can make this decision without having to solve exponential equations.
This hypothetical doesn't happen in the real world; there's no time where even the most awful subprime credit card (even at cash advance rates!) will be cheaper than a payday loan.
Its usefulness as a metric for a loan intended to be held for a couple of weeks to a month is very limited. Maybe when shopping across short-term lenders, but at that point, it's more intuitive to think in terms of how much the fee is in absolute terms.