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Comment by nostromo | Hacker News Reader

Say I live paycheck to paycheck and I need $500 to fix my car that I use to get to work until I get paid in a few weeks.

Borrowing $500 for one month and paying $15 in interest would be completely worth it and beneficial to the borrower. That's what 36% annualized interest would look like for a single month.

Do people get in trouble with debt? Yes. And that's why we have bankruptcy. But not everyone gets in trouble with debt. I don't think it's fair to make it unavailable to everyone to protect those that fall into arrears -- because, again, that's what bankruptcy is for.

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If you live paycheck to paycheck, which is consistent with your total savings being less than $500, the chance that you will be able to pay back $515 on your next payday are basically zero.

I'm not so sure, living paycheck to paycheck doesn't mean you have no discretionary spending at all. Maybe you have $500 a month for one off expenses and you already used up this months on a laptop for you kid at school or something.

and next month, another emergency. The root cause is low income, because with a higher income, such things won't be an emergency.

One off expenses don't happen 12 times a year. If you haven't been able to save $100 a month for five months, you just won't be able to save five times as much, let's be realistic.

Poor people find that one off expenses happen surprisingly often. Between car breakdowns (far more likely for those who can only afford a clunker), sudden health crises, domestic maintenance, wear and tear on clothes, unexpected inflationary price rises on essentials like energy and food, and a host of other issues, the poor have no slack at all in their budgets.

Of course the real problem is many jobs don't pay enough.

In fact not getting paid enough - and therefore being unable to budget - is considered evidence of poor character, while not paying enough is considered evidence of enlightened and mature rationality.

It's quite a strange view of the world.

How one-off are they really, at that point? Either way, the other guy's point -- that paying it off is not all that likely -- still stands.

>One off expenses don't happen 12 times a year.

so you'd be in favor of payday loans if they were limited to n times per year?

>If you haven't been able to save $100 a month for five months, you just won't be able to save five times as much, let's be realistic.

what about people who have the free cash flow, but can't save for various reasons? eg. friends/family asking for money, poor self control, etc.?

For example, in Italy there's a special kind of payday loan that is limited by law to 1/5th of the net paycheck. It is taken off the paycheck by agreement between your bank and the lender's. The combination of these two rules makes them more likely to be paid successfully, and gives them a better APR than e.g. credit cards despite being essentially used for the same purpose as subprime payday loans in America. There's also a maximum legal APR of ~18% for these loans (it varies every quarter), which is better than e.g. the ~24% maximum legal APR of credit cards

Unbounded APR and "letting the market figure it out" is not the solution.

Isn't Italy topping the charts of countries in financial ruin? If it weren't for Greece being worse Italy would be in the headlines. If America is to change laws, it'd help to use a successful nation as an example

Interesting spin on the ad hominem, but I just mentioned what I know about since I live here. Anyway, we're talking about private debt; and while Italy has a huge public debt, its private debt is quite low.

BTW, right now US treasury bonds have a higher 10y yield than Italy.

If you have $500 per month for one off expenses, you should have been able to build some sort of emergency fund.

My car was towed the other day and while I was paying my bill for the $700 or whatever SF makes you pay, there was this guy at the next counter with nothing who was sleeping in his van who had it towed and they wanted $100 to release it. The tow counter lady could obviously do nothing (his price is low because of low income etc. etc.) but the guy was going to have to sleep in the street otherwise. And there is a holding fee each day it's in the tow yard.

Sure, we could find each of these risky situations and try to regulate them, but you won't even know of them because most people will never get towed. It's better to improve access to credit.

The guy could get $100 the next day, but not $100+storage-fee/day. It's like $70/day. Any loan that goes between 0% per day and 70% per day simple interest would have been a net win for this guy.

Obviously, having eavesdropped on the whole thing, I paid it as I was leaving but I think perhaps those of us with easy cash liquidity should perhaps build some intuition on what kinds of situations cause people to take on onerous credit.

EDIT: Oh, I recalled a detail I'd forgotten when first relating the tale. He wanted to go get his phone from the van so he could call for help but they wouldn't let you in the yard without paying to release. I imagine he was going to have a damned hard time asking for help without the phone.

It’s expensive to be poor and people who haven’t ever been poor just can’t wrap their heads around that. They don’t understand the loss-loss choices poor folk have to make every day and the toll and psychological exhaustion it puts on them.

I will never let a chance slide to quote one of my favourite passages from my favourite author and fantasy series: the Discworld, Terry Pratchett (GNU!):

"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."

I absolutely hate that quote. It may have been true-ish for classes of goods and services 150yr ago but today it serves little purpose than letting yuppie consumers pat themselves on the back for buying premium products.

As someone who has been poor 10 years ago, trying to raise a family, that’s just false. We had to deal with the literal situation from the quote: shoes. We could only afford cheap ones for our children and the shoes “broke” before they grew out of them. If you think this only happened 150 years ago then I envy your privileged outlook on life. This quote is as relevant today, as it was then. Being poor is expensive.

I stand by my statement. You might occasionally find classes of long term consumable goods where the literal cheapest is just too short lived to work or medium term consumable goods where the fancier options last longer by a big enough margin to be worth it (sawzall blades and dish soap are the only two I can think of). The majority of long term consumables get destroyed by a mishap long before it succumbs to wear and tear. Coats and pants get torn. Tools get broken from too much being asked of them in a pinch. Anything with an electric motor will live until you do something dumb that lets the smoke out. If you want to save money your default should be to cheap out. You will win some and lose some but the losses will be so, so, so rare as to be a rounding error. More often the problem is you buy something that is cheap junk and it refuses to die so you are left suffering though it forever.

I went through my fair share of Walmart black no slip shoes before moving into tech. I hope financial hardship is in your future as well as your past. Maybe you'll figure it out the second time around.

> I went through my fair share of Walmart black no slip shoes before moving into tech. I hope financial hardship is in your future as well as your past. Maybe you'll figure it out the second time around.

Wow.. I had to check your post history to make sure I didn’t misinterpret your words. There was a clear pattern. You seem smart, maybe you can find it too.

My dear internet stranger and fellow HNer: I hope you find more love in your life and the ability to see it in, and give it to others. All the best to you!

Props on paying it forward. It’s not a systems fix, but we underestimate how impactful culture is & in a future where the wealth distribution is going to be even more lopsided, benevolence & sense might be a good stopgap.

It is $700 now? SF is ridiculous. They towed my car once and it was $400 back in 2017.

Strictly, it's $100 for the citation you pay online, then there's the city fees for ~$300 or something and the tow fees for $250 or something. They will take $50 off one of those things if it's your first-time. No one was amused by my request for a subscription plan.

Good man. Too few like you.

But then what is the alternative. If you don't get the car fixed, then you will not be able to commute to work. If you won't work, then you won't be able to pay rent. Isn't the $500 loan then a better alternative than ending up homeless ?

Would'nt it be better to rack up a $500 loan and then try to pay $100 per month so that it can be paid off in 6-9 months - even with 36% interest ?

The sane alternative is being part of movement of millions of people that pushes for better wages, better working conditions, etc. But no, instead everybody's forced into dealing with their own individual situation(s) as if they are not actually all connected to the greater economic organization picture.

> If you don't get the car fixed, then you will not be able to commute to work.

Don't most metro areas have public transit? Perhaps buses are not the most comfortable or convenient, but they do exist, and for good reason.

I would say that it's a pretty substantial portion of the population for whom this is not a serious option.

While true, vehicle dependency is a serious societal problem in North America that needs to be fixed. This is partially the reason. Nobody should need a personal vehicle in order to be able to live a baseline satisfactory life.

Don't disagree, but you won't get a paycheck standing on principle here.

One alternative is the guy who needs a $500 emergency loan gets it at a non-usurius interest rate. The system could be revamped to support easier repayment for actual emergency loans.

The alternative is a society where nobody is homeless regardless of their income or lack thereof.

The question lawmakers ought to ask is what is more beneficial, overall, for society? Some will suffer by denying exorbitant interest rate loans. Some will benefit by restricting them. I suggest our society would be better by not having exorbitant rate loans be legal.

Why should a society be structured by majority rule / majority benefit for such things, even if one agrees with your premise that society is supposedly better off (which I disagree with, you're not counting all the required consequences that go with re-ordering the system, you're pretending we're only talking about one thing)?

Actual democracy is an extreme negative, not a positive approach to organizing society.

You can claim the majority would benefit from eating the wealth of Sergey Brin and Larry Page at this point, they no longer operate Google, they're just ~50 year olds sitting on $200 billion in Google shares, piddling around until the day they die. So why not let society benefit sooner rather than later by consuming their wealth to its (supposed) benefit, divvy up their wealth to the poorest 51%.

You can invent a huge number of scenarios for doing things like that, where society supposedly is better off if we violate the property rights of some minority group. Why shouldn't some minority of people be allowed to lend at 43% interest if there are takers at that rate? Because you say so? Why shouldn't their property rights be respected - the property right to lend their money out at the rates they can command - and why should the majority get to arbitrarily restrict their property rights? It sets up an obvious exploitation situation, which is always the case in democracy, where the majority can endlessly torture, exploit and abuse the minority.

It would very clearly be better for the top 51% (far more than that actually) - the majority of society - if the economic bottom 10% did not exist (a group that rarely holds a job, has vast health & drug addiction problems, rarely pays taxes into the system, rarely contributes much of anything; and in fact that's true in nearly all welfare states, including the US). So they should all be gotten rid of, is that right? Democracy in action. The tax paying majority is sick and tired of carrying the never-tax-paying economic segments at the bottom, time to get rid of them, for the benefit of "society" (aka the majority power herd).

Your response delves into topics my post does not cover. I think society would be better off banning exorbitant interest rate loans. Beyond this, on this topic, I have said nothing.

The loan sharks being the ones exploited and abused is certainly an interesting take.

Is the bottom 10% that sticky ... nvm, looks like it may be. From a quick search, 43% of the individuals raised in the bottom 25% stay in the bottom quartile.

https://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_a...

So if you're born into the bottom 25 you have slightly worse than 60-40 odds odds of getting out?

Those seem like damn good odds for something that is necessarily a zero sum.

I would expect that as you get lower down (say bottom 10) it becomes even more volatile since the wealth needed to get out gets even lower.

> Why shouldn't some minority of people be allowed to lend at 43% interest if there are takers at that rate?

For the same reasons we have regulations and standards in construction, transportation, etc. Because we know that uninspected cars will leads to death and injury on the roads. So laws and regulations are there to reduce selling and using blatantly unsafe vehicles.

Why shouldn't people be allowed to buy and own slaves, if there are takers willing to sell themselves into slavery (say, to provide for their family)?

Alas, the more likely scenario is "I need $500 to fix my car. Damn piece of shit needs repair at least once or twice every year. If I had a brand-new F350, I would save so much money on repairs!"

And they happily drive off the lot with a $80k car loan at 36%. People are, pardon my french, dumb as shit when it comes to car purchases. They are very happy to lose a guaranteed $10k/year in deprecation, so they won't get hit by a $2000 surprise bill.

The valuation of assets doesn’t matter when you have cash flow issues (especially when you can't sell that asset). It really doesn’t matter in the short term how fast an asset is depreciating as long as it’s doing the job in the short term. This is why people say it’s expensive to be poor. Someone with good cash flow can make better long term financial decisions.

You're absolutely right, and it's so frustrating to see someone opting for additional $150 per month in car payments, because they couldn't afford a $500 repair, because they're already doing $350 per month in car payments.

Most people don't make great decisions buying cars, rich or poor, but that logic isn't entirely specious. If your car spends weeks at a time in the shop, and you need it to get around, it's a false economy to keep fixing it instead of buying one that is reliable.

But you don’t know it when you are in the process of fixing an old car. You pay $1000 and you think that you will be good for a couple of years. The reality is that after a couple of months you will probably need to fix something else. Flush and repeat.

Oh, after a couple goes at it you figure it out.

An old car is not a 2000$ surprise bill and you are done. It’s 1000 and after a couple of months another 2000 and after that another 1000. It never stops asking randomly for money.

While I was a student over the span of 5 years I had spent to the mechanic more than what I had paid the dealer for my 10 yo used car. Without the help of my parents I am not sure how I would be able to spit enough money to pay all of these bills.

So yes paying 400 per month for 7 years with high interest is a better deal that getting a car that you can afford with cash.

I don't mean to downplay people's problems, but this very much depends on the car, your local climate, and your ability to spot problems before they become serious. Lots of Toyotas out there that you only need to budget oil and tires for, and the occasional strut/brake pads/spark plugs as needed every few years. And there is plenty of information out there on which used cars are more reliable and how to spot parts that will need maintenance, if one is resourceful enough to search for it.

I think it's pretty hard to measure people's actual intelligence here given the way they are manipulated. US carmakers spend something like $10bn/year on advertising, for example. And car salesman are a byword for making sales by any means necessary. Car makers and dealers do that shit because it works on enough people to keep the money rolling in.

In other countries there are institutions such as municipal banks that will borrow you the money at a reasonably low interest rate. The US is fairly unique in having legal usury where loansharks are allowed to prey on poor people.

UK: hold my beer…

Can you expand?

The UK has payday loans as well. As do a few other countries.

> Say I live paycheck to paycheck

Well, that's your problem right there. Unless you have routine access to spending opportunities that yield more than 36% in yearly returns, which I'm going to assume is pretty unlikely.

The easiest way to yield that kind of return is aborting on pre-committed spending. In fact, that's the way the poor generate this kind of income. If they have $100 for food this month and a sudden expense needs $50, then that means they just go hungry until their budget hits $50 for food this month.

What you do is you starve a day or two and sell your food bank food. Everyone is capable of generating income while depleting from stores.

‘Stop being poor’ is the usual advice given in that predicament.

Don’t lean weird

You're assuming that credit is only available at that price. If he has a car and a credible case to make that he'll be able to give them the money next month, surely he could get it cheaper than that?

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