4,214 per cent APR. Interested?

Byron Orme takes the short term loan lenders to task for their ridiculous interest rates.

Byron Orme is a media intern at the Fabian Society

There was good news last Wednesday, as the NUS passed a motion supporting a cap on the amount of interest that can be charged on a loan. It’s time for the government to follow their lead and pass legislation that would put an end to a highly exploitative practice.

If your household budget is finely balanced, small things can throw it off, such as needing to pay for school clothes, books, or a new washing machine.

To do so you’ll need to borrow a small amount of money in the short term. But at the lower end of the income spectrum, borrowing money at the relatively low interest rates available to others is impossible.

The only options available are often exploitative and trap people in a cycle of debt through a combination of easy credit and vast interest rates.

One of the biggest companies involved is Wonga, which Boris Johnson allowed to sponsor free tube travel on New Year’s Eve. A quick look at their website shows that anyone who wants to borrow £207 for 20 days pays 4214 per cent APR. That is not a typo, and is the example they themselves give as representative. This is also not just ‘what is costs’. Six lenders account for 90 per cent of the market and there isn’t enough competition to drive interest rates down.

Such companies are doing extremely well, as public debt is being transferred onto households. As Stella Creasy, who has been running a concerted campaign against these companies, says:

“We know that there has been a fourfold increase in payday lending since the recession began, and that due to a lack of regulation in the market in the UK, The Money Shop, Wonga, Provident, BrightHouse and other companies are expanding across the country at an alarming rate. Indeed, they have already pointed to the government’s policies as increasing their customer base.”

Both the last government and this one have put some money into credit unions which is an important step. Third sector organisations and NGOs are best placed to offer a service for which demand is extremely high, and rising.

But £73million is not a great deal when you consider 1.5m people are indebted to pay day lenders. There should be more regulation of an industry designed to trap the most vulnerable into a cycle of un-payable debt.

20 Responses to “4,214 per cent APR. Interested?”

  1. Phil Randal

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  2. The Dragon Fairy

    “@leftfootfwd: 4214 per cent APR. Interested? http://t.co/3BOd6co – @ByronTOrme investigates the short term loan lenders” @stellacreasy

  3. Byron Thomas Orme

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  4. Geoffrey Pearson

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  5. Dario Nahi

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  6. Natan Doron

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  7. David Marsden

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  8. t hill

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  9. Kevin Gulliver

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  10. Trakgalvis

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  11. Pucci Dellanno

    RT @leftfootfwd 4,214% APR. Interested? http://bit.ly/eh5HDk @ByronTOrme investigates short term loan lenders @nick_clegg @RichardJMurphy

  12. Tim Worstall

    So they’re making excessive profits as a result of a lack of competition are they?

    Great, set up in competition and with your lower rates you’ll make a fortune. Good luck to you.

    Although do understand, lending small amounts of money to people for short periods of time is hugely, grossly, expensive.

    For example, in your example from Wonga….they actually charge someone, in total, £47.48 to borrow £207 for 20 days. It looks huge as an APR of course. But are you sure that you could run a website, an office, collect your loan repayments, on such a sum?

    You are? Excellent, I wish you luck in your new business adventure.

    You’re not?

    Oh dear.

  13. Steve Kelly

    Irrespective of what it costs, these short loan money;lenders are no different from the ILLEGAL sharks that prey on poor people. They should be categorised in the same way and outlawed. They are offensive.

  14. Dave Citizen

    @ Tim

    So your faith in the wonders of competition convinces you that such rates are acceptible does it?

    Although do understand that not all products are good for people or the society they live in.

    For example, electrical goods with sub standard wiring are rightly outlawed – although competition may drive suppliers towards cutting corners, the good of people and society demands strict standards. Are you sure driving poor people further into debt is good for society?

    You are? Excellent, I wish you luck when accelerating debt causes your neighbours to loose control. Perhaps you can talk them around with a lesson in the wonders of competition.

  15. Tim Worstall

    “So your faith in the wonders of competition convinces you that such rates are acceptible does it? ”

    Yes. Anything else?

  16. Tony Best

    When your outgoings (which include your existing debt payments) exceed your income, you will find you have no money left. There comes a point that you will need to eat something. You know that using these these companies will exponentially increase the rate you are growing your unpayable debt, but you must put something in your empty tummy.

  17. Dave Citizen

    LoL

  18. Keith

    Tim,

    Have you ever used one of these loan shark loan companies?

  19. Rory Alexander

    RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders

  20. Government needs to find a way to tackle high-cost lending | Left Foot Forward

    […] 4,214 per cent APR. Interested? – Byron Orme, April 16th […]

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