MSE News: Finally! Government to cap costs of payday loans

MoneyMan2014

The press seem to love branding Payday companies such as Quickquid and Wonga as "Loan Sharks", but actually I believe they serve an important part in the market...

For starters, they will lend to people who can't get credit elsewhere.
Everyone quotes the astronomical APRs they advertise, but the fact is that nobody ever PAYS that amount of interest, as by LAW the interest must be frozen after 30 days!

However, the law also dictates that they MUST advertise the equivalent APR. So here's a question for you: If I lent you £100 today and expected you to pay me back £101 tomorrow, you'd think that was pretty reasonable, wouldn't you? Well, if you didn't pay me back for a year, and I continued to apply 1%/day compound interest, you would owe me £3678 after 1 year! That's why APRs don't work for short term lending!

In addition, it has been shown that taking out a payday loan can cost less than an overdraft or credit card as a means of short term borrowing!

There ARE some great lenders and brokers out there, some of whom don't charge any fees...

gb12345

MoneyMan2014 wrote: »

In addition, it has been shown that taking out a payday loan can cost less than an overdraft or credit card as a means of short term borrowing!

Not to mention scuppering your chances of getting a mortgage when the lender sees that you've been living beyond your means and relying on pay day loans.

MoneyMan2014 wrote: »

There ARE some great lenders and brokers out there, some of whom don't charge any fees...

Why do I get the feeling you'll be back soon to post some links to these "great lenders an brokers". :cool:

Apples2

Nothing which hasn't been said a thousand times before on here, but not by anyone signing up to mention, almost spam like.

MoneyMan2014

Everyone has to write a first post! Do not assume I am a spammer simply because you don;t agree with my opinions!

gb12345

But your "opinion" is basically advertising spiel for the pay day loan companies and dodgy "brokers".

Cycrow

The problem with payday loans is that they are aimed at people that dont properly budget. And these are not the best people to be lending money to in the first place

Sabbathdei

They get a bad press simply because the majority of people who take out the loans know full well they won't be able to pay the loan back in a month, so the PDL's get a bad rep for doing what they're legally entitled to do. The APR is high but has no importance in the deal as it's a monthly loan which is a different calculation; they're bound by law to print the APR even though it doesn't mean anything. PDL's aren't the problem, it's the financially !!!!!! people who take them out.

RuthnJasper

PDLs can help; if they are used properly - but, in a great many cases, they tempt the desperate folk out there (of which there are many hundreds of thousands) into a rapid spiral of borrowing more, deferring repayments, taking out one PDL to repay another and so on into the abyss...

There ARE complete prats out there who will get a PDL to pay for a holiday; there are also plenty of perfectly well-intentioned folk who get a small PDL in order to get their son a pair of football boots after the first pair were stolen (or similar). But for a lot of people (as evidenced by the numerous threads on the Loans board), the temptations seem to outweigh the risks. The "PDL brokers" are worse - but I don't think that PDLs are a good thing at all.

MoneyMan2014

Thank you for a couple of people who have the decency to be civil to a newcomer!

Monkeyballs

Hi MoneyMan,

Don't take it personally, it's just not a great subject to be in favour of on this site

I agree that Payday lenders do serve a purpose and if used properly they can be a lot cheaper than a mainstream bank.

I used them in the past, I'll never use them again (they probably wouldn't lend to me anyway LOL) but used correctly they are helpful and if banks weren't legislated in the way they currently are and could get away with what payday lenders currently are then I'm pretty sure they would be offering similar deals!

I remember my first PDL, I had managed o pour Tippex all over my work trousers and had no money so I borrowed £50 and paid it back 3 days later job done My last one was in 2013 when I borrowed £1000 with a promise to repay £1280 out my £1420 wage despite having shown a bank statement that listed my rent coming out at £380, several credit card repayments of at least £20 and at most £85 and repayments to other lenders of several hundred £'s followed shortly by payments going in for several hundred £'s from the same company... This was among other activity on my statement...

I had problems, I was gambling and balancing the books by lending more and more! It got to the point when I went into one high street lender to ask about setting up a repayment plan as I'd contacted their head office and they told me I needed to do it instore... My friendly neighbourhood advisor called me an idiot and that I had to just pay the f%$£ing money or I would be taken to court... Or, I could enter into a new agreement whereby I borrow £2k and repay £380pcm for 2 years (smile returning to his face) but even I wasn't that desperate (or stupid).

Until you get clued up from sites like this or from CAB or the various debt charities you're a battery hen.

So yes, they do serve a purpose if used appropriately but if they all vanished then I wouldn't ever miss them.

And as for PDL brokers? Ha ha ha haa...They might as well all be Nigerian princes emailing you to offer £million's in gold bullion and gems...

MB