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Comment by GFK_of_xmaspast | Hacker News Reader

25% is still pretty usurious.

25% is close to a U.S. angel investor's cost of capital. Capping rates across a market does not lower the cost of capital, it depresses capital availability.

For a lending charity, rate caps reduce interest income. This, in the long run, depletes the charity's capital base. An interest rate (>5%) lower than the expected default rate (~10%), as it appears to be here, amplifies the effect. That said, the decision could make sense. If "non-usurious lending" increases donor interest enough, it could offset the capital depletion effect.

I think many people would feel the same way. We usually see 25% rates offered for small loans for new members, which are only held for a short time. For example, a new borrower may request $50 at 25% interest and hold it for one month, and total interest payments would be $1.04. Even then many lenders normally opt to fund the loan at less than the rate offered.

I don't think the percentage rate is that big a deal, even at 25% (although I'd probably go for ~15-20%, assuming 10% default rate and 5% cost of capital) -- the area where I'd try to subsidize or otherwise avoid passing through cost/profit is fees.

I'm fine with short term loans at 25%. As you say, $50 at 25% for a month is $1.04. The problem is when a $1-5 fee is applied on top of that, giving interest rates >100% annualized. That's the kind of usury which has been common in the US payday advance industry (although better now in most states after regulatory action), rent-to-own, etc.

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