The Demonization of 36 Percent APR

Competition guarantees that the borrowers will receive loans at the lowest possible cost and highest possible customer service—in both large- and small-dollar loan markets.

In addition to Google's recently announced ban on payday loan ads, an update shared by David Graff, director of global product policy, says: "In the U.S., we are also banning ads for loans with an [Annual Percentage Rate] of 36 percent or higher." It looks like Google is jumping onto the 36 Percent Rate-Cap Bandwagon.

This "36 percent and no more" mindset stems from a passing familiarity with large-dollar installment loans – particularly for automobiles and mortgages: With installment loans, the borrower knows in advance the size, number and frequency of the equal payments and the APR. Importantly, an installment loan "amortizes" – that is, part of each payment reduces the amount owed.

The competitive market for these large-dollar loans clears at a lower interest rate – meaning, these loans can be supplied to borrowers at a lower rate because the lenders make a risk-adjusted profit at these rates.

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