Can it be morally justifiable to charge the most vulnerable people 1552 % apr interest on a loan ? Pay back 15.5 times more than you borrowed WTF ? Andy
Its no worse than the "proper banks" used to do not so long ago £35 if you were over drawn by a few pence plus a few other nefarious practices that went on for years. But , no its not morally justified, its obscene.
Ok , let's say I lend you £97 for something. Could be that you forgot your wallet for a meal etc. And the next day you pay me back. Most normal people would probably give the lender £100 rather than mess about for £3 plus you'd be grateful that they lent the money anyway. So that's a rate of 3% flat rate for a day. Now times that by 365 = 1095% flat rate. Apr is a whole world of pain to work out from a flat rate but it's roughly double. Apr is completely irrelevant without knowing what was borrowed and for how long. You wouldn't be down the pub saying " I borrowed £97 off my mate and he charged me 2000+% APR " , you would be saying "Bob is a life saver he lent me £97 when I forgot my wallet , I'll get him a pint as thanks. "
Yes, that's a fair point. Strange how quickly you forget. Barclays had their solicitors write to me many years ago because their charges had taken me 79p over drawn. Andy
Even less ethical is the practice of advertising "Zero percent interest" loans for cars etc. The seller omits to mention that the buyer would get a substantial discount off list price if they buy without the loan, a discount which is not available to buyers who take out the so-called zero interest loan. The effect is that there is a substantial hidden interest charge. In my view this should be made illegal. Some US states have a "Truth in Lending Act" which rules out this kind of dishonesty by ensuring that the cash price and the credit price are the same - interest charges have to be disclosed upfront.
It's called a subsidy usually in lending. It's a marketing ploy as people are obsessed with APR even though they don't actually understand it. Every item sold has a certain amount of profit. Some can be given away as discount or given to subsidise the % on the finance. It's a dying trend now though in the motor trade. Most cars now have a FDA (finance deposit allowance) which is only available to finance buyers. It's effectively a discount for taking finance from the manufacturer no the dealer. So it is in fact cheaper to pay with someone else's money and then just pay it off a month later.
I don't have a lot of sympathy for people who use these companies, they know what they are getting into. Maybe in the early days a few people got caught, but they have had so much negative press for a few years now, everybody knows their exorbitant APR rates. I work with a young lad who has used them a few times as he's always "skint" Takeaways every night and the full Sky TV package though.
Quite. It is the deceitfulness surrounding this process which is objectionable, and ought to be illegal.
Having said no-one's forced to borrow money, there's some distasteful adverts doing the rounds at the moment for credit rating companies who offer to help you "manage your money" and improve your credit rating. In other words help you to borrow more. They're full of images of beautiful young things flaunting the latests gadgets, designer clothing and nice cars as if success is defined by how much money you are able to borrow. The sub-text is Join the in-crowd: get into debt. The mark of success, surely, is not having to borrow money.
Simple answer, no it can't. However - these are companies that will lend to the people least able to pay it back, people who decent reputable companies wouldn't normally lend to for that very reason. As such, a percentage of what they charge is to cover the costs of those who don't pay it back. I understand that some people will, on occassion, need money at short notice that it would be difficult to get from elsewhere - but these "payday loan" companies make out they are such nice people who will sort out your finances when what they really are, in reality, is blood-sucking parasites who will get you deeper into debt... Their adverts are designed to deliberately misslead vulnerable people when they most need help. These companies are financially rich, and morally bankrupt...
You see ? People still don't understand APR's. It's irrelevant unless you know term and amount borrowed. It just shows what the amount you would pay would be on a annual basis. But the idea is it's a payday loan so no longer than a month max. If they used 6.9APR it would be silly. Borrow £97 and pay back £97.08 the next day. If they didn't exist then people would still be using the doorstep leg breakers. They provide a service to people who have no alternative.
As has been said, it's the people with bad credit ratings that use these type of companies, with a good credit rating a month long loan can be had for as little as 3 to 4% with the likes of Ratesetter. Steve
If it was that simple I would agree but when debts are rolled over between companies it becomes a different story. There is an alternative; which is to live within your means.
Everyone has to live within their means over a period of time, obviously. Unfortunately some people have irregular income streams - contractors, zero-hours workers, actors, writers - and may have months with no income at all. Folk in that situation have little option but to borrow in the lean months and pay back in the fat months. If their credit rating is poor, their only option is to resort to the vampires. This does not necessarily mean they are stupid. Some previous posts have implied that the only alternatives are 1,500% apr or 6% apr. Well no, interest at 20% or 25% is feasible. Whilst it would be far above bank rate (0.25%) it would be within the bounds of reason.
Apart from the mortgage I don't do finance, If I cant afford to buy it I either save up or do without it.
That's the reality of self-employment. My borrowing in that situation is by way of my overdraft which has an annual interest rate of 18.28% which is variable, but in the current interest rate climate is pretty static. My overdraft really is like a payday loan in that it is used to maintain cashflow when bills have to be paid before a job is completed and final payment received. But it is vastly cheaper. More important to me than the interest rate of an overdraft, which is rarely made use of for longer than a week or two and rarely more than two or three times a year, is having a large enough agreed limit that is reliably fixed. I closed an account with Santander because they would arbitrarily reduce my overdraft limit at less than a month's notice and keep the limit under constant review. Their reason given was that I wasn't using my overdraft enough, therefore I didn't need it. They didn't seem to understand how self-employment works.
