There are even worse APR's. Suppose you place a bet at 2:1 odds, 7 minutes before a 3 minute horse race. The racetrack is essentially borrowing money from you at at an APR of 3.6 million %!
The right way to look at loans is to break them down into APR and default risk multiplier. The total amount which needs to be paid back is DRM x exp(APR x duration). Payday loans, much like the racetrack, have reasonable APR's but high DRM's.
Dividing ln(DRM) by small numbers is as ridiculous as dividing a $1 investment by 1/1 billion % of a company and claiming that 37 signals has a $100 billion valuation. Yeah, they are using a standard formula, but in a ridiculous way. Models are pointless when you use them beyond their range of validity.
The right way to look at loans is to break them down into APR and default risk multiplier. The total amount which needs to be paid back is DRM x exp(APR x duration). Payday loans, much like the racetrack, have reasonable APR's but high DRM's.
Dividing ln(DRM) by small numbers is as ridiculous as dividing a $1 investment by 1/1 billion % of a company and claiming that 37 signals has a $100 billion valuation. Yeah, they are using a standard formula, but in a ridiculous way. Models are pointless when you use them beyond their range of validity.
http://37signals.com/svn/posts/1941-press-release-37signals-...