Payday lenders often describe the cost of their loans in terms of fees or simple interest rates. Responsible lenders readily disclose the APR on their loans, aligned with the Truth in Lending Act (TILA). They are not afraid to let their customers compare the costs of their loans to other loans in the market. Tellingly, payday lenders often object to having to disclose the APR of their loans.
Why APR Matters
Payday lenders do not like disclosing APR for two reasons. One, it allows a true comparison of the cost with other forms of credit, even those that are short-term like a credit card advance. The real cost of payday loans is so expensive that distracting borrowers away from the way the cost compares with other loans makes it easier to lure borrowers in.
Two, although traditional payday loans are marketed as being for short-term use, research shows many of these loans are refinanced and extended for months or years. By their design, payday loans create a cycle of long-term debt for borrowers, so the APR reveals the high cost of the loans over the duration of the cycle.