Provident Personal Credit and other high interest loan options

sundancegirl

Hi

I work within social housing in Scotland and I use alot of the information available on this site to help the tenants at our association on a basic welfare rights capacity.


At the moment I am finding alot of people in the "Provident Personal Credit" and "Pay day advance" trap. There are now various pay day advance options available on the net and on the high street.

I have just saw a case where a gentelman borrowed £300 from Provident only to pay back £504. This is an incredible amount of interest and by my calculations it is 183% APR.

I understand that this can sometimes be the only option for some people, however why does the interest need to be that high and Is it even legal?

I realise that there are bankruptcy/Insolvency and trust deed options and so much more availble now, which is fine. However what if you did not want to take that road and if you did? Would it even stop the debt collectors knocking on your door and sending threatening letters?

I would love to hear from people on this who can help on a Welfare Rights capacity and people who have suffered the high interest of the "Provvy" and other simalar organisations.

Many Thanks

Clare
Glasgow

sephrenia

Hey there,

I currently have loans with Provident totalling around £1500 and yeah the interest can be sickening to start with. I am lucky that I have a fairly nice area manager for my region because once he saw that we made regular payments and renewed and paid those on time too, he got the company to reduce the interest rate from something like 39% to around 25% and if we keep paying, apparently it gets reduced further.

I don't know if that applies throughout the company but it did for us which helps a lot. The trouble is, these loan companies tend to come around at the perfect moment when you have something that needs paying for and no money to do it with and when they talk to you, £5 a week or so doesn't sound so bad after all. Then you need more money and £5 becomes £10 and so on until suddenly your robbing peter to pay paul again.

Thankfully, by this time next year I will have gotten rid of provident once and for all and would never recommend anyone use them unless they were absolutely desperate and had already sold anything of value in the house to cash converters.

Hope that helps

lydsmom

Yep I have two provident loans, the intrest is rediculous but like you say you just think of it as a fiver a week or what ever and it doesn't seem so bad but soon enough it spirals...I now pay £24.00/week :eek:

I have been with them for a while now but fully intend on paying them off and getting out of it but as yet there's no way I can pay it off sooner...no mention of any reduced intrest rate here so must be down to the individual managers to make that decision (although i've not missed a payment in the last three years and have unfortunatly renewed a few times)

As for the intrest I think it's that high because they seem to just take your word that your going to pay and although it's scandelous it must be legal mustn't it

Rafter

sundancegirl,

The interest rate is high because:

1) They offer small amounts, so all the paperwork and admin has to be paid over a much smaller balance.

2) They collect door to door which is much less efficient than electronic payments made on larger loans.

3) The people they lend to tend to default on their loans more often and therefore they have higher bad debt losses.


My personal view:

People on low incomes should have access to credit but that their should be a cap on the cost. Financial education in schools, to benefit claimants and on TV should encourage people to save for unexpected costs, budget properly and shop around for credit and ensure they are paying a reasonable rate of interest.

APR can also give some suprising results. Say I lend you £50 and you pay it back the following week and buy me a pint of beer at £2.50 to say thank you. Looks reasonable, but the APR of the transaction is actually 1164%.

Say you set up in business selling small loans of £500 over 1 year at 20% APR.

The interest you will earn on each loan will be £50.

Because of the people you lend to - 1 in 20 or 5% don't pay you back - that costs you £25.

When you setup the loan it takes 30minutes of someones time, a credit search and all the paperwork and systems costs. A cost of £10.

You have to collect and process 12 payments each month which takes 10 minutes of someones time, bank charges and paperwork - say £2 per payment or £24 a year.

So you are already losing £9 per month before earning any return on the money you have lent.

The interest rates do look horrible, but actually the profits that provident and others make is not exceptional.

R.

sundancegirl

Thankyou for your reply.

As you have broken this down it is easier to understand (re APR) and I am glad you agree that people with low incomes a should have access to loans at a capped rate.

I get what you are saying regarding the small amounts of money therefor larger interests and door step collections ect mean higher charges. As one lady has mentioned above they always seem to get you just at the right time and in my opinion they are exploiting people. I see people everyday finding it hard to pay their rent and again I think its a great idea to teach younger people the value of money so they dont get into a mess. However anything could happen to get you into a tight money situation eg: realtionship breakdown, loss of employment, illness ect.

I just wish there was a better way to help people get out of this particular situation. For example the bank charges could be reclaimed as it was "unlawful". Hopefully in the future we will see a reclaim procedure in place for the high interest loans such as Provident. I understand you can receive a small rebate if you pay it back faster but hopefully provident customers can get more back in the future.

Rafter wrote: »

sundancegirl,

The interest rate is high because:

1) They offer small amounts, so all the paperwork and admin has to be paid over a much smaller balance.

2) They collect door to door which is much less efficient than electronic payments made on larger loans.

3) The people they lend to tend to default on their loans more often and therefore they have higher bad debt losses.


My personal view:

People on low incomes should have access to credit but that their should be a cap on the cost. Financial education in schools, to benefit claimants and on TV should encourage people to save for unexpected costs, budget properly and shop around for credit and ensure they are paying a reasonable rate of interest.

APR can also give some suprising results. Say I lend you £50 and you pay it back the following week and buy me a pint of beer at £2.50 to say thank you. Looks reasonable, but the APR of the transaction is actually 1164%.

Say you set up in business selling small loans of £500 over 1 year at 20% APR.

The interest you will earn on each loan will be £50.

Because of the people you lend to - 1 in 20 or 5% don't pay you back - that costs you £25.

When you setup the loan it takes 30minutes of someones time, a credit search and all the paperwork and systems costs. A cost of £10.

You have to collect and process 12 payments each month which takes 10 minutes of someones time, bank charges and paperwork - say £2 per payment or £24 a year.

So you are already losing £9 per month before earning any return on the money you have lent.

The interest rates do look horrible, but actually the profits that provident and others make is not exceptional.

R.

nomoneytoday

People on low incomes do have a choice. Credit unions generally charge 1-2% per month. That is 26.9% APR max.