When an institution loans money, the applied interest rate needs to cover time delay, risk, and the work involved in processing it. Processing many small loans totalling £100k costs a lot more than processing a single £100k loan.

Short-term “payday” loans rarely last longer than a month, making the annual interest irrelevant. A short-term, small loan of a hundred dollars capped at an annual interest rate of 36%, as was passed in Oregon, would deliver less than $1.50 over two weeks which is unlikely to cover the cost of processing, let alone the risk involved. Following the annual interest limit in Oregon, three-quarters of the hundreds of payday lenders closed down.