Avoid pay day loans!

UsetheFORCE

pvt wrote: »

I'm not sure if you're disagreeing with me or not - you seem to have posted a scenario comprehensively arguing the very need for PDLs?

In the scenario you give, I would agree that as a last resort the PDL loan for £650 might be justified. And if the victim of the situation borrows it and repays it one week later, plus a fee that reasonably reflects the efforts of the PDL company, then everyone is happy. Well, all except those who then unrealistically express those fees as an AER % of the loan for its one week duration.

And the point of the Claridge's whisky to similarly illustrate their 4,000% mark up, if you chose to calculate it in the same terms. To those people who want a tot of Irish in Claridge's bar out of a fine piece of lead crystal, that mark up is probably considered fine.

But as we all know - the problem comes when that £650 is borrowed with no prospect or intention by the borrower of every paying it back on the agreed date. Suddenly, then, it becomes the PDL company's problem that the borrower cannot repay their loan as agreed. And indeed, even the PDL company's fault that the borrower may have lied about their circumstances - naughty naught PDL company for just, well, believing them! And when the PDL company try to get their money back, and invoke their published continuance charges, they all of a sudden become big bad bullies.

As I have said, I don't like PDLs, and wouldn't envisage myself using one. But I am trying to point out there are 2 sides to the story.

There are many needy people who have made use of PDLs in an emergency, complied with their agreement to replay the loan, and who are very happy with that service. It seems unreasonable to "stamp out these greedy PDLs" and deny legitimate users access to a service that nobody else provides, simply because of a minority of borrowers who lie about their circumstances to borrow money they cannot afford to repay as agreed.

I would expect any lender would carry out due diligence on their potential clients before lending them money. I would hazard a guess that many of their clients should not of been lent money in the first place!!! Okay, a few may of lied on their applications but I guess a lot didn't and yet still they are lent money!!! There are a lot of people on here with maybe 5+ PDL's...!!!!!!, I thought a PDL was a short term loan to cover a one off expense...so how has someone got so many of them going at the same time?

There is a place for PDL's but they need proper regulating...I have no problem with the charges etc within the loan term but that is about it!!! The way they do business outside that is unacceptable - they lend their money, they take the risk of it going bad!

dktreesea

pvt wrote: »

I'm not sure if you're disagreeing with me or not - you seem to have posted a scenario comprehensively arguing the very need for PDLs?

In the scenario you give, I would agree that as a last resort the PDL loan for £650 might be justified. And if the victim of the situation borrows it and repays it one week later, plus a fee that reasonably reflects the efforts of the PDL company, then everyone is happy. Well, all except those who then unrealistically express those fees as an AER % of the loan for its one week duration.

And the point of the Claridge's whisky to similarly illustrate their 4,000% mark up, if you chose to calculate it in the same terms. To those people who want a tot of Irish in Claridge's bar out of a fine piece of lead crystal, that mark up is probably considered fine.

But as we all know - the problem comes when that £650 is borrowed with no prospect or intention by the borrower of every paying it back on the agreed date. Suddenly, then, it becomes the PDL company's problem that the borrower cannot repay their loan as agreed. And indeed, even the PDL company's fault that the borrower may have lied about their circumstances - naughty naught PDL company for just, well, believing them! And when the PDL company try to get their money back, and invoke their published continuance charges, they all of a sudden become big bad bullies.

As I have said, I don't like PDLs, and wouldn't envisage myself using one. But I am trying to point out there are 2 sides to the story.

There are many needy people who have made use of PDLs in an emergency, complied with their agreement to replay the loan, and who are very happy with that service. It seems unreasonable to "stamp out these greedy PDLs" and deny legitimate users access to a service that nobody else provides, simply because of a minority of borrowers who lie about their circumstances to borrow money they cannot afford to repay as agreed.

If it were me in the situation I described, I would like to think I would just wait it out until i got paid. But on the other hand, this flat would be freezing in the winter without heating.....

I don't have a problem with payday lenders, just with the exhorbitant interest rates they charge, which, imho, should be outlawed.

If the PDL company believe the cash flow of the borrower makes it unlikely they can get the money back, then they should do as the banks do and take it on the chin. They shouldn't have lent the money in those circumstances. What I can't stand about PDLs, unlike banks and social lending companies, is their vigorous (at best) and in some cases lawless pursuit of people who either can't pay them back or won't pay them back. Once they have their hooks into you they are very reluctant to let you go, especially if you do pay them back on schedule. Think of the uproar if the major banks were to employ this tactic to lure people into borrowing from them.

People on low incomes are vulnerable compared to the vast majority of people who probably don't even know where the local PDL company is located in their town and wouldn't spare them a second thought even if they did. It's hard working for very little. Physically hard. Not having a car. Not being able to get even a £100 overdraft, let alone a credit card. As for job security! There isn't any. It's about time the government regulated these companies and capped the amount of interest they are allowed to charge. Maybe it will be a long while before the likes of FairFinance take over from them, but that firm can't be doing so badly, based on the number of people they employ. In the meantime, what's wrong with inflicting and AER interest cap on the PDLs? Oh dear, some would go out of business? I hope so.

rodders65

This is precisely why Money Saving Expert exists, to tell people out there to be aware of these loan sharks that operate on the fringes of legitamacy, and feed off the vunerable.

pvt

dktreesea wrote: »

I don't have a problem with payday lenders, just with the exhorbitant interest rates they charge, which, imho, should be outlawed.

But the rates look exorbitant because the fixed fees have to, by law, be expressed as an APR %.

I just looked on one big PDL website and a £400 loan for 7 days will cost you £33.50. That's barely 8% of the principal. And for the the work involved and risk taken by the PDL company, it doesn't sound outrageous to me. It's probably about the same order of magnitude as a high street travel agent gets for arranging your holiday, or that a high street insurance broker gets in commission for their effort in setting up a motor policy.

Try walking into a high street bank you've never used before and asking for a £400 loan for 7 days, and explain you don't want to move your banks accounts there, or do any other future business with them. Do you think they'll be interested in doing all the work involved for thirty quid?

I'll say again, I am absolutely no fan of PDLs. But they serve a purpose, and when used as agreed, all involved seem to end up happy.

shocky_2

The default rate for PDL's is huge. It isn't as profitable as many people think - it took a few years for Wonga to turn a profit.

If your bank won't lend to you that is a good indication that you should STOP BORROWING.

dktreesea

youngsolicitor wrote: »

The default rate for PDL's is huge. It isn't as profitable as many people think - it took a few years for Wonga to turn a profit.

If your bank won't lend to you that is a good indication that you should STOP BORROWING.

I would agree with you except that banks often seem to have completely arbitrary attitudes when it comes to whether or not to lend money to someone. Say you are a customer of more than one section of the bank. You want a credit card. Their computer comes up with a card with a £5,000 limit, 20% interest, minimum payment say £180 a month. Your rent is £700 a month. Potential outgoings per month £880.

You then decide you want to buy a house. You earn £20k a year. You find a house for £120k. You need a mortgage of, say, £100k. The bank quotes you for a loan of £100k, over 30 years, 4.75%, £522 a month, including the capital repayment. Well below your current rent. And lo and behold, the bank decline the mortgage because, being 5 times your income, it's "not affordable".

The mortgage is probably a far better risk than the credit card. Indeed, the bank may never make a single pound of income on the credit card. At least the mortgage would guarantee them a future income stream. Well, no guarantees, but a likely future income stream, at least. But no, they couldn't possibly lend to you , Mr £20k a Year Customer, because the computer says you can't afford it.

The default rate for PDLs may well be huge, but surely that points to the laziness (and greed) of the lender, not checking up on their potential customer properly prior to making the loan?

opinions4u

dktreesea wrote: »

I would agree with you except that banks often seem to have completely arbitrary attitudes when it comes to whether or not to lend money to someone. Say you are a customer of more than one section of the bank. You want a credit card. Their computer comes up with a card with a £5,000 limit, 20% interest, minimum payment say £180 a month. Your rent is £700 a month. Potential outgoings per month £880.

You then decide you want to buy a house. You earn £20k a year. You find a house for £120k. You need a mortgage of, say, £100k. The bank quotes you for a loan of £100k, over 30 years, 4.75%, £522 a month, including the capital repayment. Well below your current rent. And lo and behold, the bank decline the mortgage because, being 5 times your income, it's "not affordable".

The mortgage is probably a far better risk than the credit card. Indeed, the bank may never make a single pound of income on the credit card. At least the mortgage would guarantee them a future income stream. Well, no guarantees, but a likely future income stream, at least. But no, they couldn't possibly lend to you , Mr £20k a Year Customer, because the computer says you can't afford it.

The default rate for PDLs may well be huge, but surely that points to the laziness (and greed) of the lender, not checking up on their potential customer properly prior to making the loan?

1. Mortgage rates can and will go up, usually sharply when compared to rents.

2. Owning property comes with a new set of bills that renting doesn't have.

Mortgage affordability models take this into account.

Oh, and well run credit cards where no interest is ever paid can turn a profit for the issuer.

dktreesea

opinions4u wrote: »

1. Mortgage rates can and will go up, usually sharply when compared to rents.

2. Owning property comes with a new set of bills that renting doesn't have.

Mortgage affordability models take this into account.

Oh, and well run credit cards where no interest is ever paid can turn a profit for the issuer.

Yes, re credit cards, I had forgotten about the other side of the credit card transaction, where the bank makes money out of the merchant.

And sure, there is a risk that mortgage rates can soar. And property prices could also tank, the way they did in the States. I'm not saying that taking on a mortgage, either for the lender or the borrower, is risk free. But surely the payment of rent over a long period of time, especially when it is considerably higher than then proposed mortgage repayment, is a good indicator of affordability?

nyc_451

blue_mango wrote: »

I once gave a loan for a young person who wasn't supposed to get it because he didn't have enough income per year. But he was rejected everywhere else and he only needed a hundred, so I did it for him. Not to get a new customer, but genuinely wanted to help and he left very surprised and grateful. Promised to myself that if he comes back to borrow again, I will find him and tell him off!

I know the thread is old but...I kept my promise!:D Tried to tell him off nicely, even gave a link to MSE, but didn't work - he got very insulted! Well I understand, it's none of my business, is it... And who was I kidding hoping he would take a payday loan only once...