Are State Interest-Rate Caps an Automatic Win for Borrowers?
APR is an interest rate plus any fees a lender charges. A $300 loan repaid in two weeks with a $45 fee would have a 391% APR. The same loan with an APR reduced to 36% would have a roughly $4.25 fee  and much less revenue for the lender. APR isnt an appropriate way to view the cost of a small loan, says Andrew Duke, executive director of the Online Lenders Alliance, which represents short-term online lenders. "The number ends up looking a lot higher and more dramatic than what the consumer perceives to be the cost of the loan," he says. Duke says consumers should instead use the actual fee to assess a loans affordability. But what the fee doesnt show is the costly, long-term debt cycle many borrowers end up in, Stifler says. More than 80% of payday loans are taken out within two weeks of repaying a previous payday loan, according to the Consumer Financial Protection Bureau. "The business model of payday loans and the industry is based on repeat borrowing," Stifler says. "It is a product that causes a debt trap that actually pushes people out of the financial system."