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Comment by jkurnia | Hacker News Reader

Hi zaroth,

Am I understanding correctly that you are suggesting we not use the term "interest", but instead call the amounts borrowers pay to lenders a fee?

That is worth considering. It would avoid much of the confusion over flat rates versus APR, and would still be clear to borrowers that the amount represents the cost of the loans.

I'd be interested to hear others' perspective on whether Zidisha ought not to use the term "interest" at all, but instead replace it with "fee" or some other term.

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I think the problems run deeper than that, because you have multiple different groups you are trying to communicate with, and some of them are getting incorrect information here.

If borrowers want to know how much they are paying in interest rate, then I think you should tell them in terms of APR. If borrowers want to know how much they are paying in terms of dollars, then that's easy, just tell them.

I think itemizing out fee A, fee B, fee C, is just a silly game. If you go back to your "About this Loan" table, what you call 'Service Fee' and 'Interest Rate' are the same thing, just combine them. Then, if I want to know how much they actually cost, I have to look at Total and subtract $50? But then it's still missing the "one-time fee".

What if the table did say; (and I'm not saying you should do this)

  Loan Date:        April 14, 2014
  Repayment Date:   June 2, 2014   (7 weeks)

  Amount Requested: USD 50.00
  Loan Fees:        USD 13.51  (200% APR)
  Total Amount:     USD 63.51

Of course your system knows if I'm a repeat borrower, and can automatically charge the $11.78 or not. Look, it's a hard truth that the first loan has terrible terms because of the registration fee, but you can't hide from it.

The only problem with this is it doesn't really help me understand how much it's going to hurt if I need more than 7 weeks to repay. But I don't know enough about your payment model to really comment on that.

Hi zaroth,

This makes sense, and we are already doing some of that.

In the loan application form that borrowers see, the 5% fee to Zidisha and the interest offered to lenders is in fact combined. Borrowers choose any combined rate from 5% up to a maximum of 30%, with a text description indicating that the first 5% of this is paid to Zidisha and the rest is paid to lenders.

The loan application page also indicates the registration fee, as a cost separate from the combined interest / fee rate that the borrower selects.

We separate the service fee from the lender interest in the loan applications that are displayed to lenders, because the intent is to indicate the maximum interest that they can expect to receive from each loan proposal.

Maybe it can say:

  Loan Date:        April 14, 2014
  Repayment Date:   June 2, 2014   (7 weeks)

  Amount Requested: USD 50.00
  Loan Fees:        USD 1.83  
  One time fee:     USD 11.68 (one time life membership fee)

  Total Amount:     USD 63.51

Well, if you called it a fee, then it could be just as easily misleading, depending on what you included in (or excluded from) that fee. In fact, it may confuse things even more.

That is, the real issue here is that the true rate/cost is not reflected clearly in the interest as currently presented. So, the real solution here is not to introduce a new, ambiguous term, but to use the traditional and well-understood term for conveying the true cost of a loan; that being "APR".

Of course, by definition, you'd then necessarily include in that number the true costs of the loan.

Are your fees based on an interest rate?

They have a "Service Fee" and an "Offered Interest Rate" both of which are calculated the same way, based on the starting balance, and the loan period.

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