Lenders charge high interest rates for a reason.

When High-Interest Payday Lending Pays

By Scott Shane

British payday lender Wonga recently announced that it is expanding its high interest lending from individuals to small companies. While this move has been criticized by consumer groups, who say it will hurt small business, they are wrong to oppose the expansion.

Sure, interest rates on these loans are high. Wonga, for instance, plans to charge small businesses interest rates between 0.3 and 2 percent a week.

No one wants to pay to borrow money. And most borrowers–consumers and businesses alike–would prefer to pay less than Wonga is charging. In fact, I’ll go out on a limb here and say most borrowers would prefer an interest rate of zero.

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