Should payday loan ads be restricted during TV shows aimed at kids?

JP08

I don't like payday loan companies, thankfully never had the need to use them, but I don't like the alternative to them even more ! So I guess they're a necessary evil.

But there is a need to regulate the ads, similar to the way smoking advertising was regulated before it was banned - make sure all the "glamour and glitz and looking cool" is removed.

Re the interest rates. I'm not that sure that they are as excessive as they look.

Which may sound odd, but bear with me on this.

The cost of granting a loan can be broken down into four parts.
1) The fixed cost of setting up a loan, broadly the same for £10 as for £1000. Still takes paying for the computer system, the guy sitting there taking the call, the building, HR, payroll, workplace pension etc.
2)The cost associated with the risk of default.
3) The cost of getting the money to lend.
4) Some profit.

But
1) is fixed. Say 20 mins to get a loan. Some call centre bod on £10 per hour. Shall we say £20 for the fix costs.
2) These are payday loans, lets assume a 25% default rate
3) I'm going to ignore, it's the small one of the three
4) A return on investment - pick a figure at "random but make the sums easy" - 15%

So to borrow £200, the costs are £100 (£20 fixed + £50 for defaults + £30 profit).

Or 50% interest over one month. So an APR somewhere north of 600% (I know I've only crudely multiplied by 12, but will be in the ballpark area)

Quick google suggest Sunny advertise Representative APR 757% - so I don't think my figures are that far adrift.

Stevie_Palimo

JP08 wrote: »

I don't like payday loan companies, thankfully never had the need to use them, but I don't like the alternative to them even more ! So I guess they're a necessary evil.

But there is a need to regulate the ads, similar to the way smoking advertising was regulated before it was banned - make sure all the "glamour and glitz and looking cool" is removed.

Re the interest rates. I'm not that sure that they are as excessive as they look.

Which may sound odd, but bear with me on this.

The cost of granting a loan can be broken down into four parts.
1) The fixed cost of setting up a loan, broadly the same for £10 as for £1000. Still takes paying for the computer system, the guy sitting there taking the call, the building, HR, payroll, workplace pension etc.
2)The cost associated with the risk of default.
3) The cost of getting the money to lend.
4) Some profit.

But
1) is fixed. Say 20 mins to get a loan. Some call centre bod on £10 per hour. Shall we say £20 for the fix costs.
2) These are payday loans, lets assume a 25% default rate
3) I'm going to ignore, it's the small one of the three
4) A return on investment - pick a figure at "random but make the sums easy" - 15%

So to borrow £200, the costs are £100 (£20 fixed + £50 for defaults + £30 profit).

Or 50% interest over one month. So an APR somewhere north of 600% (I know I've only crudely multiplied by 12, but will be in the ballpark area)

Quick google suggest Sunny advertise Representative APR 757% - so I don't think my figures are that far adrift.

All above is wrong and I take you failed to read my post as £100.00 borrowed over a month would be £120 - £130.00 at a push and as for defaulting on loans it does not happen that often, I work in this sector and would put down bad debts at around 3-5% at most. When people read the APR it is there as it has to be listed but these are monthly loans so the rate would never apply as you do not ask for £100 over one year and even if you did the amount would still not represent the high APR listed.

JP08

Stevie - that's kind of the point I was trying to make - though I will agree it looks like my figures are "off". Looking at the the horrendous APR is meaningless, it is not how short term loans work - and a short term loan will always come out looking dear because of the fixed costs involved in granting a loan.

Jaunty_One

The main issue is youngsters are rarely taught about the value of money, debt etc, in schools or at home. They're more susceptible the allure of loans/credit cards via lust of material items, or 'necessity' for daily expenditure.

If our youngsters were armed, we wouldn't be as cautious about the dangers of 5,385% APR rates!