Brendan Burgess
Founder
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Who recently said?
Guesses welcome
Guesses welcome
Quiz question
- Thread starter Brendan Burgess
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G
Guest
Guest
IFSRA?
Carmel Foley?
Carmel Foley?
S
Shylock
Guest
Moneylending a social service
B, I don't know who said it but I presume your gist is that it is someone that should have known better and that moneylenders are parasites deserving of no justification of their charges.
Let me explain. The greatest cost for a ML is the cost of default. The misfortunates who are forced by our society to avail of ML services (banks etc. having turned them away) through no fault of their own run say a 5% chance that they will not be able to pay up after the month is up. 5% per month default would mean the ML would need to charge 80% APR just to break even.
The fact is that this is not a usury charge or even an interest charge in the normal sense, it is kind of an insurance premium which people in this position are willing to pay. As with all insurance the majority will see no "benefit" but the unfortunate minority who have no option but to default will receive the benefit from the transfer of the premiums from those who do not default.
B, I don't know who said it but I presume your gist is that it is someone that should have known better and that moneylenders are parasites deserving of no justification of their charges.
Let me explain. The greatest cost for a ML is the cost of default. The misfortunates who are forced by our society to avail of ML services (banks etc. having turned them away) through no fault of their own run say a 5% chance that they will not be able to pay up after the month is up. 5% per month default would mean the ML would need to charge 80% APR just to break even.
The fact is that this is not a usury charge or even an interest charge in the normal sense, it is kind of an insurance premium which people in this position are willing to pay. As with all insurance the majority will see no "benefit" but the unfortunate minority who have no option but to default will receive the benefit from the transfer of the premiums from those who do not default.
E
endowed
Guest
Yep, it's IFSRA alright as quoted by Louise McBride in an article about moneylenders in this month's edition of Consumer Choice.
Brendan Burgess
Founder
- Messages
- 54,789
Endowed, you win the prize. I will nominate you to the IFSRA Consumer Panel, so that you can explain these things to them.
Hi Shylock
That was not what I was saying at all.
It's a long and hard struggle to get people to accept the validity of APR - just check out what the Credit Unions are saying about it. So IFSRA should not be undermining it with such glib comments as this. The costs of collection and bad debts have to be factored into the calculations of APR.
Brendan
Hi Shylock
That was not what I was saying at all.
It's a long and hard struggle to get people to accept the validity of APR - just check out what the Credit Unions are saying about it. So IFSRA should not be undermining it with such glib comments as this. The costs of collection and bad debts have to be factored into the calculations of APR.
Brendan
A
Azriel
Guest
APR
While I am in agreement that APRs should be quoted,
I do think that they do lose an element of their validity when considered over a very short time frame.
For example, borrowing €100 today, but paying back €101 tomorrow. APR is 376%.
The APR effectively calculates the cost of borrowing where you repeat the transaction over and over for a year. Where borrowings are only ever going to be for a period significantly shorter than a year, then I'm not sure that the APR (while technically accurate) is quite as applicable.
I do agree that all costs should be factored into the APR calculation, else comparisons become very difficult.
While I am in agreement that APRs should be quoted,
I do think that they do lose an element of their validity when considered over a very short time frame.
For example, borrowing €100 today, but paying back €101 tomorrow. APR is 376%.
The APR effectively calculates the cost of borrowing where you repeat the transaction over and over for a year. Where borrowings are only ever going to be for a period significantly shorter than a year, then I'm not sure that the APR (while technically accurate) is quite as applicable.
I do agree that all costs should be factored into the APR calculation, else comparisons become very difficult.
Brendan Burgess
Founder
- Messages
- 54,789
Re: APR
Azriel
APR is the Annual percentage rate - it applies whether the loan is for one year, 20 years or 2 months. It is the only standard for comparison.
The problem with making it optional, is that expensive lenders such as (most) Credit Unions and Money Lenders claim it's not relevant to them. IFSRA should not be undermining this standard, despite its minor limitations.
Brendan
Azriel
APR is the Annual percentage rate - it applies whether the loan is for one year, 20 years or 2 months. It is the only standard for comparison.
The problem with making it optional, is that expensive lenders such as (most) Credit Unions and Money Lenders claim it's not relevant to them. IFSRA should not be undermining this standard, despite its minor limitations.
Brendan
A
Azriel
Guest
APR
The converse situation could be considered to be performance figures.
A share that appreciates 2% in a month has generated an annualised return of >26%. I would certainly question the merits of quoting the 26% figure, given that the implicit assumption is that the performance of a single month will be repeated over and over 12 times.
The argument is similar for a very short term loan. For periods of 6 months+ (my opinion) this effect falls away, but over very short terms the APR needs to be handled carefully.
The converse situation could be considered to be performance figures.
A share that appreciates 2% in a month has generated an annualised return of >26%. I would certainly question the merits of quoting the 26% figure, given that the implicit assumption is that the performance of a single month will be repeated over and over 12 times.
The argument is similar for a very short term loan. For periods of 6 months+ (my opinion) this effect falls away, but over very short terms the APR needs to be handled carefully.