A recent survey of small businesses by Lendio, a platform that matches small business borrowers with lenders, has revealed that when evaluating the cost of a loan, the total payback amount plays a crucial role in the decision-making process. While annual percentage rates (APRs) are obviously important, small business owners are equally, if not more, concerned with the total amount that they will have to repay.
In fact, if given a choice between using the APR and the total payback amount, borrowers would prefer to use the latter to decide which loan to choose.
Many online lenders do not disclose the APR and small business borrowers are often ignorant of the true cost of the loans that they are taking. This has earned the alternative lending industry a reputation for charging high-interest rates while deliberately not revealing what a loan costs. Regulatory authorities in several states, including California, New York, and Illinois have called for a greater degree of monitoring of the activities of online lenders.
Industry analysts and experts are of the view that lenders should be required to reveal APRs much in the same manner as banks and other financial institutions are mandated to inform consumers about the interest rates being levied on them.