Extortionate APRs

crashburn66

My partner recently received some junk mail offering cash loans.The companies name is Provident Personal credit.They are offrering loans from £50 to £500 at 177% APR.Tenants and unemployed welcome.
How do they get away with it?

Maybe as well as giving Carol Voderman a hard time,this site should pressure these firms aswell.

Astaroth

If you look at the cheque cashing type services their APR is typically over 500%

A lot of these services are offered to unemployed, involve sending someone round in person every week to collect the money (a very costly way of doing it) and are initially short term loans (again not much money in doing a loan for 6 months as you only get to apply interest 6 times rather than the 60 of a 5 year loan).

At the end of the day, how much would you want to be paid to give someone who is unemployed £100 on the promise it will be paid back over the next 6 months with you having to visit them in person every week?

Add to that then the cost of running a company in a regulated industry and it seems to be that £57 of interest is fairly low given the proportion of people that will default on their payments.

crashburn66

Thanks for the reply Astaroth.

I was a bit hasty with the post and didn't read the finer points till a little later.It was the 177% APR that jumped out at me.
Reading your reply I have to concur with you.

Regards Crashburn66

Sharp1270

I've been programming for lenders like these for many years and APRs well above this figure are not uncommon (double in some cases). The problem is that the law does not allow for a lender to agree a service charge for collecting from the doorstep. How much do you think a NatWest manager would charge for turning up at a 7th floor flat every Thursday evening for 50 weeks at exactly 7.45pm to collect a tenner? (And very often be refused or offered only a fiver.) The answer is that you wouldn't even get the loan from a High Street lender especially if you were an unemployed tennant with CCJs as many Provident customers are.
If the Consumer Credit Act allowed it then, say, agreeing to a service charge of £1 per week and excluding this £50 from the total charges would have a dramatic effect on the APR - but the Act requires that all fees and interest charges are included in the calculation.

Astaroth

crashburn66 wrote: »

Thanks for the reply Astaroth.

I was a bit hasty with the post and didn't read the finer points till a little later.It was the 177% APR that jumped out at me.
Reading your reply I have to concur with you.

I agree it does look shocking and it is many peoples reaction.

A fairly funny one is if you look at the Natwest Black credit card website (it is their exclusive card)... they have more or less hidden it away a bit now but they make a big thing that their APR looks silly because of the annual fee they charge and that if you worked the APR out on a sensible amount (rather than the £1000 as is legally required) then you would get a much more reasonable figure - but they do go on a bit of a rant about it