Legal 2356% loan rate on TV

skintbutsolvent

JimmyTheWig wrote: »

I heard about a test for young children on the radio the other day.
Parent puts a marshmallow on a plate for them. They can either have the marshmallow now or if it is still there in 10 minutes they can have an extra one and eat them both there and then.
It's supposed to show that a child will get on well in life if they can wait it out.

Anyone care to guess what APR (AER, I guess, from the kid's point of view) this represents?
Once you know the answer you will see that sometimes APRs aren't the relevant thing.


[But I agree that some of these companies are taking advantage. It would be great if someone could rein them in. Or even better if people no longer needed their services!]

Even now I would go for one immediately:o

But offer me a tenner now or £20 next week - no question!!!

RobertoMoir

dnm0pd wrote: »

First time I have posted so I could probably have done this another way. My point was that the provi and greenwood loans are aimed at people who do not understand interest rates or who are unable to get credit any other way. I do understand interest rates but others may not.

Perhaps any legislation should be directed to borrowers more than lenders, e.g. :
If you are unable to understand how a loan works and what the terms mean then you can't have one as you clearly won't understand the agreement you're signing.

Controversial I know but I think it could be effective. It would have the indirect effect of cutting off the air supply of firms whose terms and charges for loans are too ridiculous for words, too.

pwally2

Correct me if I am worng but isnt the APR an irrelevance. The APR only comes into effect if you make no payments towards the loan and is the interest rate a company can charge you for the whole year of non payment. What should be of relevance is the actual monthly interest rate. Eg on credit cards the monthly interest rate is the figure used to calculate what you owe that month and will be 1-2% whereas the APR may be 20-30%.

Am sure someone will correct me if I am wrong!!!

RobertoMoir

pwally2 wrote: »

Correct me if I am worng but isnt the APR an irrelevance. The APR only comes into effect if you make no payments towards the loan and is the interest rate a company can charge you for the whole year of non payment. What should be of relevance is the actual monthly interest rate. Eg on credit cards the monthly interest rate is the figure used to calculate what you owe that month and will be 1-2% whereas the APR may be 20-30%.

Am sure someone will correct me if I am wrong!!!

I can only suggest you read this, then think about the people paying 2356% as described in that TV ad the OP mentions and weep. Depressing isn't it? And then possibly start to see my point about people who are unable to understand loans shouldn't have them.

GreyPilgrim

The company are advertising short term loans to needy people. The interest rates are reflective of that. I find it distasteful and tragic that a certain demographic have to resort to that type of supplier, but (to play devil's advocate) at least they are advertising their rates clearly.

At least that puts the onus onto the consumer to understand what the repayment obligations are.

What is the alternative? Ban loans above a certain APR?

RobertoMoir

GreyPilgrim wrote: »

What is the alternative? Ban loans above a certain APR?

You didn't like my suggested alternative then? Yes I was being serious.

robredz

Rafter wrote: »

dnm0pd,

Totally agree their needs to be some sort of cap, but as others have said short term loans for short term money are going to be expensive.

If you take out a £10,000 loan over 5 years there is plenty of interest and income to offset the costs of collecting the money, doing the paperwork etc.

With a small loan even a fairly modest cost for paperwork and processing payment looks silly on an APR calculation.

For example, you lend a friend £100. 2 weeks later they pay you back and buy you a pint (£2.50) to say thanks. That is an APR of 90%.

Now say you run a loan company doing lots of these loans, you advertise on ITV, you have to do paperwork, because of the type of loans, a lot of customers don't pay you back. You need computer systems, staff etc - so you can see how the APR gets so big.

Personally I would ban doorstep lending and this kind of loan and introduce a social loan scheme through the post office. Maximum £250 per person and paid for by £5 per week deductions from benefits or pay with a maximum term of 1 year. APR 8%. That way people have a genuine emergency source of cash, without ending up living in hardship though paying most of their disposable income to doorstep lenders or payday loan companies.

R.

There is such a scheme for families on benefits and people with an immediate crisis, it is called the Social fund, and is woefully underfunded.

GreyPilgrim

RobertoMoir wrote: »

You didn't like my suggested alternative then? Yes I was being serious.

Which bit?

I wasnt' trying to be opinionated. I don't know the answer to this. I grew up in a single parent household where my mum was easy fodder to the more typical council estate loan sharks. Luckily, they were the more mellow ones. They knew that once they had her, they had her for life and there was no need to get heavy or break her legs. they knew that they had a constant source of income from her based on a tiny principle sum. there was no need to break her legs if she missed a paymnet. Just add a fiver on, which would (over the years) balloon to a couple of grand

Isnt' there any onus on the borrower to be a bit more financially savvy?

RobertoMoir

GreyPilgrim wrote: »

Which bit?

My idea/comment:

me! wrote:

Perhaps any legislation should be directed to borrowers more than lenders, e.g. :
If you are unable to understand how a loan works and what the terms mean then you can't have one as you clearly won't understand the agreement you're signing.

Controversial I know but I think it could be effective. It would have the indirect effect of cutting off the air supply of firms whose terms and charges for loans are too ridiculous for words, too.

I know that suggestion isn't the golden shining answer but I think its a useful starting point for a discussion.

GreyPilgrim wrote: »

I wasnt' trying to be opinionated. I don't know the answer to this. I grew up in a single parent household where my mum was easy fodder to the more typical council estate loan sharks. Luckily, they were the more mellow ones. They knew that once they had her, they had her for life and there was no need to get heavy or break her legs. they knew that they had a constant source of income from her based on a tiny principle sum. there was no need to break her legs if she missed a paymnet. Just add a fiver on, which would (over the years) balloon to a couple of grand

Isnt' there any onus on the borrower to be a bit more financially savvy?

There is in my opinion as you can see but it doesn't address people in sheer desperation and the people who are ready to reel them in as you say in your post.

JimmyTheWig

JimmyTheWig wrote: »

I heard about a test for young children on the radio the other day.
Parent puts a marshmallow on a plate for them. They can either have the marshmallow now or if it is still there in 10 minutes they can have an extra one and eat them both there and then.
It's supposed to show that a child will get on well in life if they can wait it out.

Anyone care to guess what APR (AER, I guess, from the kid's point of view) this represents?
Once you know the answer you will see that sometimes APRs aren't the relevant thing.

Lol, I've just worked this out and it's even higher than I would have expected. I make it 1.4 x 10^15824.
That's a 1 followed by 15824 zeros!