
Online installment loans have taken the subprime market by storm - hhs
https://www.bloomberg.com/news/articles/2019-10-29/america-s-middle-class-is-getting-hooked-on-debt-with-100-rates
======
blhack
Okay these loans certainly sound like a bad deal, but what are people supposed
to do? Say your car breaks and you can’t get to work. For all of us here
billing out >$100hr or whatever your local consulting rate is, the answer is
some calculus around the cost of losing your job vs the cost of fixing it.

But for MOST people, the cost of fixing it is functionally infinite. They
literally do not have even a few hundred dollars to, for instance, replace a
tire.

Yeah, the interest on these is predatory, but then what are these lenders
supposed to do? Many of the people getting these loans WILL default on them.
Yes it would be great to offer these loans at a reasonable interest rate, but
they are unsecured loans. The only collateral is the clients credit score.

It’s easy for all of us with our comfy tech jobs to hate on these, but to me
that feels like kicking the poor while they are already down. Yeah, they know
the loan is bad. They probably don’t have any other options.

Instead we should be looking at ways to make it so that giant unpredicted
expenses don’t happen at all. That means cheaper transportation options,
cheaper access to healthcare or preventitive care, predictive diagnostics,
etc.

It helps nobody to point out how foolish the poor are.

~~~
mumblemumble
I don't want to tut-tut the poor, but I do want to tut-tut consumer culture in
general.

There are a whole lot of people who _should_ be able to afford an unexpected
car repair bill, and could quite easily do so, if they weren't spending $100 a
month on cable TV, $800 every other year on a high-end smartphone, $500/month
on owning an SUV when a $200/mo economy car would serve just fine, etc., and
put the money into a basic rainy day fund instead.

And a middle and working class that was just a little bit more frugal might
create some downward pressure on prices that would, in turn, alleviate what
less wealthy people need to pay on just the basics.

~~~
bryanlarsen
> $100 a month on cable TV

given that the average American spends 4 hours/day watching TV[1], that's well
under $1 per hour of entertainment. There aren't a lot of hobbies or
entertainment media that are cheaper.

1: [https://www.statista.com/statistics/186833/average-
televisio...](https://www.statista.com/statistics/186833/average-television-
use-per-person-in-the-us-since-2002/)

~~~
reverend_gonzo
Huh?

Books, sports, art, music, are all way cheaper forms of entertaining oneself.

Most hobbies or entertainment don't have a charge per hour.

~~~
tboughen
I think the charge per hour aspect reflects the amortised cost of engaging in
the activity.

Books can be free if borrowed from a library - but ownership has an ‘hourly
cost’

Mind sports like chess have an insanely low hourly cost, but regular sports
that involve consumables like trainers have an hourly cost.

Music is free if you sing, but otherwise involves buying and maintaining an
instrument. Strings, for example are consumables.

~~~
SkyBelow
>Books can be free if borrowed from a library - but ownership has an ‘hourly
cost’

Even the library has a cost, but it is generally much much lower if you have
good access to a library.

------
majos
Not an expert at all in this area, but if people are interested in statistics
for people's financial habits, the Federal Reserve's most recent "Report on
the Economic Well-Being of U.S. Households" [1] is useful.

It's a survey of about 10,000 people and, as far as I can tell, is the source
for many claims like "40% of American adults cannot meet an unexpected $400
expense". That statistic in particular is consistent for the past few years.

There are also many other interesting statistics:

* 17% of adults are not able to pay all of their current month's bills in full

* 20% of adults had major unexpected medical bills in the last year

* Among young adults, hispanic people are twice as likely to attend for-profit colleges than white people, and black people are five times as likely

* Half of those who attended for-profit schools would change their choice if they could; a quarter of those who attend other schools would

Seems like addressing the costs of medical care and education would go a very
long way.

[1]
[https://www.federalreserve.gov/publications/files/2018-repor...](https://www.federalreserve.gov/publications/files/2018-report-
economic-well-being-us-households-201905.pdf)

~~~
alecco
That’s valid, but financial education is quite bad in US. It shocks the
mentality of most people, in particular low income. Many buy $4 coffee, fancy
shoes, big TVs, yet they complain about not being able to pay the credit
cards. Sorry, I’m foreign, but that’s what most other visitors I’ve met think.

------
mumblemumble
This oldie from SNL is never going to stop being relevant:

[https://vimeo.com/199334296](https://vimeo.com/199334296)

------
notus
I feel like the government should be offering some type of non predatory debt
relief comparable to this. This service is only a detriment to the borrower
due to the crazy high interest rates, but I think the government could break
even with much more reasonable interest rates, consumers would be better off
financially, and the predatory industries would disappear since they can't
compete.

~~~
rootusrootus
I think that would be a terrible idea. The gov't would want to make the debt
non-dischargeable like they do with student loans. It would be devastating.

Maybe we could try to actually tackle things like medical costs so people
aren't getting so deeply into debt to begin with.

~~~
notus
> I think that would be a terrible idea. The gov't would want to make the debt
> non-dischargeable like they do with student loans. It would be devastating.

I fail to see how this is worse than current predatory loan scenarios.

~~~
kaikai
Because current predatory loans can be discharged through bankruptcy.

------
tempsy
Is there no money in financial education...? I feel like there's no
controversy in suggesting that the state of personal finance in this country
is a disaster, even for people who are highly educated (how many tech workers
actually understand how their startup options work?)

I just wonder what a viable business model would be for quality personal
financial education or resources.

~~~
kart23
A Khan academy for personal finance would be great. Investopedia is a cool
resource, but for the financially illiterate, it's pretty tough to understand
the wealth of knowledge there.

~~~
WhompingWindows
That already exists:

[https://www.khanacademy.org/college-careers-more/personal-
fi...](https://www.khanacademy.org/college-careers-more/personal-finance)

------
MuffinFlavored
What's HN's opinion on 0% balance transfers? Yes, there's usually a 3% fee
but... I've been able to borrow about $5k-$12k for a one time 3% fee over 18
months multiple times in a row now. I make sure to always pay the balance back
before it is due. Why don't more people who need a cash infusion do this?

~~~
rootusrootus
Be careful with balance transfers. At 18 months, a 3% fee is like a 3.75% APR.
If the balance transfer is only 12 months, it's about 5.5%.

Still a lot better than a subprime installment loan, but a 3% fee is not a 3%
APR.

~~~
basch
But minimum payments are super low, so you can store the cash somewhere high
interest and pay most of it back in a lump sum. If cash is 2% right now, your
minimums might be $90-100ish a month, and the rest can wait till month 12.
Theres little to no incentive to pay it off early except to lower your
utilization.

A 10,000 3% loan over the course of one year equal payments has $147.00
interest. A 3% transfer has $300, but your balance in month 12 will be 8846,
which is like $80 back in interest if you save those what would be monthly
payments until the end. Under this math, a 3% balance transfer is equivalent
to 4.5% APR one year loan.

~~~
p1mrx
I don't think there are any savings accounts with >= 3% APY right now. How
could it ever be profitable to borrow money at a higher interest rate than you
earn by holding it?

Or, if "somewhere high interest" refers to the stock market, then you risk not
being able to pay back the loan in a year.

~~~
basch
A balance transfer is a one time fee, not compounded monthly or daily. You pay
3% up front, and then theres no benefit to paying the loan off early, except
for holding a lower credit card balance.

What I am saying is, is that IF you are taking a balance transfer, to
accurately compare it to a traditional, monthly compounded loan, you need to
account for the minimum payment differences (the balance transfer will be
5x-10x lower) and then calculate the interest that extra cash not paid back to
the loan can net you.

I am making a counter argument to the claim that a 3% balance transfer is
equal to a 5.5% apr loan, i think its closer to 4.5% if managed wisely. Its
closer to 50% higher, not double.

~~~
rootusrootus
This is why I said "be careful" ;-). Someone who thinks that a balance
transfer offer is easy math may not be making the best financial choice. As
you point out, managed carefully, that can be mitigated.

------
0000011111
If the business model is to use an internet app to run a payday loan operation
targeting low-income poor credit borrowers it is unethical in my option.

It is the dark side of the internet.

We need to work to build communities where people are not as vulnerable to
this type of scarcity.

For more information on this topic see the book: Scarcity: The New Science of
Having Less and How It Defines Our Lives

------
close04
For anyone who can't read the original:

[https://outline.com/WHPVDu](https://outline.com/WHPVDu)

------
thrower123
This seemed to be a very vague article. I'm assuming that people that take
advantage of these loans must have quite bad credit, or otherwise they'd be
going the LendingTree/LendingClub option, where you can usually get medium
term personal loans up to about $20k at under 10% interest?

------
cascom
People don’t think in APR for small dollar loans they think in nominal terms.

Also - loan origination/servicing costs have a nominal floor - it costs the
same to originate/service a $50 loan as a $500 or $5000 one, necessitating
what would appear to be a abnormally large interest rates.

------
papln
Clickbait headline is referring to "online installment loan, a form of debt
with much longer maturities but often the same sort of crippling, triple-digit
interest rates"

------
arkw
I interviewed recently at Fig Loans - they are working to dismantle the
predatory payday loan industry. Only in a few states at the moment, but doing
great things IMO

~~~
ac29
This is exactly the sort of company the article is about - the APR on their
homepage is 190%. Maybe that's better than payday loans, but its still
predatory and unscrupulous.

~~~
greenshackle2
I'm torn on this, I don't know what the break-even rate is on such a loan, but
it must be quite high, because the default risk is high.

Let's say 150% APR is exactly the break-even rate for this kind of loans to
high-risk borrowers, would you say a company writing 150% APR loans is
predatory?

Obviously it is an atrocious interest rate. But what is the alternative?
Unless the government or non-profits step in the make loans at a loss (or hey,
direct cash transfers) to the poor, the alternative is no access to credit at
all, which is strictly worse.

This smells of The Copenhagen Interpretation of Ethics to me:

"The Copenhagen Interpretation of Ethics says that when you observe or
interact with a problem in any way, you can be blamed for it. At the very
least, you are to blame for not doing more. Even if you don’t make the problem
worse, even if you make it slightly better, the ethical burden of the problem
falls on you as soon as you observe it. In particular, if you interact with a
problem and benefit from it, you are a complete monster."

[https://blog.jaibot.com/the-copenhagen-interpretation-of-
eth...](https://blog.jaibot.com/the-copenhagen-interpretation-of-ethics/)

------
mindslight
I'm _shocked_ that an economy based on the median person being in debt is
finding new ways to get debt into everybody's hands.

This topic is ultimately just a symptom. Focus on the larger economic design
(eg rent treadmill) that precludes most everyone from saving a positive amount
of wealth, rather than their needing to take on debt for emergencies.

~~~
kovacs
Exactly. Sure, some of the customers of these products are simply mismanaging
their finances, a great deal of them are simply not getting enough value for
their labor. How do we get to a form of capitalism that works for all people?
Not an easy answer for sure.

------
geggam
Why should society be bailing out the banks who loan money to folks who cannot
afford it then turn around and bail out people who borrow money and cannot
afford it ?

If you are broke file bankruptcy and reset your life. Quit trying to steal tax
dollars

~~~
notus
If filing for bankruptcy had no negative consequences I would agree, but that
isn't the case. I agree that we shouldn't be bailing out banks, but we should
have a safety net to bail out individuals. People go broke for various
reasons, but the hallmark of an accomplished society is being able to ensure a
decent quality of life for most people. Telling people to accept personal
responsibility for everything that happens to them is a huge cop-out. You're
basically saying you refuse to consider what scenarios might warrant this
because it doesn't fit into your world view.

~~~
specialp
Conversely if overextending yourself for whatever reason had no consequences,
it would be to your disadvantage not to overextend yourself. How do we
determine who should be "bailed out"? Seems the issues that are unavoidable
that could cause ruin (illness/disability) should be addressed at a higher
level than borrowing money with no recourse.

~~~
geggam
I have no issues with socialized medicine. In fact the fact remains medicare
is actually the one functioning health insurance we have because the govt sets
the rates that can be charged.

Unregulated healthcare is silly since people dont have a choice about their
health ( not discussing the food choices )

People do have a choice about borrowing money.

~~~
heavenlyblue
Health is going to become a bigger problem once we reach a point in the
development of our medicine when we could literally heal anyone.

Right now government-subsidised healtcare works because keeping yourself
healthy simply can not be externalised to the government. But what if I could
spend the beat of my years being a coke-snorting socialite hoping to meet
someone at one of those parties who would make my life?

20-year alcoholic? Let us grow you a liver for the total of $2M of taxpayer’s
money.

