NPR Confused by APR

//NPR Confused by APR

NPR Confused by APR

A recent story on National Public Radio (NPR) on the prospects of enacting Federal APR caps on consumer loans, focused quite rightly on challenges associated with balloon-payment payday and title loans (A Ban on High Cost Loans May Be Coming – NPR)

Disappointingly, however, the piece made the classic and all-too common blunder of mindlessly characterizing loans which carry an Annual Percentage Rate (APR) of above 36 percent as “high-cost”.

This is frustrating for NILA as we have repeatedly explained that the relationship between the APR of a loan and its cost is ENTIRELY DEPENDENT on the term of the loan.

In this way, and to take a simplified example for clarity’s sake, a 100-dollar loan, with interest of 1 percent, repaid the next day, costs the borrower one dollar, yet has an APR of 365 percent.

According to NPR, that loan would clear the threshold to qualify as a “high-cost loan” by 329%!

We hope that NPR, their media colleagues, and policymakers in Washington DC and elsewhere will hoist on board the information in this graphic:

Graphic: Security Finance/Joe Schubert

SOURCE: NILA

2019-12-18T15:27:04+00:00 December 18th, 2019|Categories: News|Tags: , , , |Comments Off on NPR Confused by APR