'Can you use payday loans to boost your credit rating?' blog discussion

Former_MSE_Helen

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "Can you use payday loans to boost your credit rating?" Blog.

Please click 'post reply' to discuss below.

JimmyTheWig

Presumably even if they can't see that it's a payday loan, they can see that it was a loan for a small amount paid off quite quickly.
Doesn't that, almost by definition, suggest it's a payday loan?
I.e. no-one walks into a high street bank and asks for a personal loan for £50 to be paid off in a month's time, do they?

So I'd say even now it could be damaging.

kerrirobberts

From checking my credit report, it looks like it goes down as an advance against wages.

tagq2

Why is there no payday loan company which charges a non-insane rate of interest? Lending money to reliable people is very cheap.

If the APR needs to be so high to deal with all the defaulters then clearly they are not lending responsibly.

ViolaLass

tagq2 wrote: »

If the APR needs to be so high to deal with all the defaulters then clearly they are not lending responsibly.

It has to be high because the loans are short term.

tagq2

ViolaLass wrote: »

It has to be high because the loans are short term.

Obviously it will be slightly higher APR than a long-term loan to reflect the fixed costs of each loan arrangement. But it simply doesn't cost anywhere near £16.24 to electronically loan someone £150 for a week - increasing sharply for payment a day late.

Claret1985

tagq2 wrote: »

Obviously it will be slightly higher APR than a long-term loan to reflect the fixed costs of each loan arrangement. But it simply doesn't cost anywhere near £16.24 to electronically loan someone £150 for a week - increasing sharply for payment a day late.

Admin costs + the amount of people who default on these loans? If you pay on time its cheaper than a bank charge!

tagq2

Claret1985 wrote: »

Admin costs + the amount of people who default on these loans? If you pay on time its cheaper than a bank charge!

At the scale wonga operates, admin costs will be nothing near that amount. It's all automated. The only interesting thing you're doing is running an electronic ID/credit check. So, assuming a well-functioning market, either they're making a huge profit or there is a massive proportion of defaulters - and not just people who pay a little late. If the latter, they are lending irresponsibly. If the former, why are others not entering the market to significantly undercut the current crop?

Or they're relying on a pathological market where one party is woefully underinformed. For example, the local credit union offers medium term loans at highest APR of 26.8% for an "instant loan" - the auto-quote thing offers weekly repayments for 6 months and its examples suggest loans of £500 possible. Even if the union offers no lower amount, we're still talking about only £30 interest over half a year. I'm quite sure they're smaller than Wonga so there's no economy of scale argument.

ViolaLass

tagq2 wrote: »

If the latter, they are lending irresponsibly. If the former, why are others not entering the market to significantly undercut the current crop?

Perhaps because they can't.

FullTimeBadMan

If you're really wondering why PDL companies would charge high-interest, you need your head looking at. To turn a profit and because they can. If you don't like it, don't take one out.

camaj

I was wondering the same thing. My main question is whether this is easier to get than one of those credit-cards. You would imagine so.

The other question is whether it helps. It seems so but I don't understand why Martin says the help would be "very minor"?