Is Safety Net Credit Representative 68.7% APR correct, charging 0.8% per day

Stellastor

I have taken a few short-term loans, some of which daily charges are 0.5% per day but their representative %APR is higher than Safety Net's, which charges 0.8% per day. I was reading about the regulation about Representative %APR states that: ‘the rate of interest, and whether it is fixed or variable or both, expressed as a fixed or variable percentage applied on an annual basis to the amount of credit drawn down’ (CONC3.5). 

Can someone more knowledgeable explain this pls?

Safety Net stops accruing interest after 40-days, but in my opinion that is irrelevant in the calculation of the Representative %APR because the Representative %APR is applied on an annual basis irrespectively whether or not the lender stops accruing interest.

I am confused.  

jonesMUFCforever

Try going somewhere cheaper for your loans.

MalMonroe

Don't be confused. Borrowing money will cost you a fortune. That is a fact. Try not to do it if possible. Especially if you have a very low income. [68.7% APR makes me feel poorly!]

Stellastor

I wish I had better choices, but sometimes these types of loans are the only ones available for people like me with a bad credit score. Anyway, I was hoping to get some support on the question as that could help me potentially to bring a case against this lender and possibly reclaim the money and interest back, which would be helpful - hence asking support in understanding this better?

Shakin_Steve

Stellastor said:

I have taken a few short-term loans, some of which daily charges are 0.5% per day but their representative %APR is higher than Safety Net's, which charges 0.8% per day. I was reading about the regulation about Representative %APR states that: ‘the rate of interest, and whether it is fixed or variable or both, expressed as a fixed or variable percentage applied on an annual basis to the amount of credit drawn down’ (CONC3.5). 

Can someone more knowledgeable explain this pls?

Safety Net stops accruing interest after 40-days, but in my opinion that is irrelevant in the calculation of the Representative %APR because the Representative %APR is applied on an annual basis irrespectively whether or not the lender stops accruing interest.

I am confused.  

If the loans which are charging 0.5% interest per day do so for the whole year, the their APR is going to be higher than a loan which charges 0.8% per day for only forty days.
The simple way of looking at it is, if more interest is payable on the same amount over the course of a year, then the APR is higher.
However, these loans are not usually payable over a year, they are usually settled much more quickly. We cannot answer you question fully because you haven't quoted any figures. I would be very surprised if, after all of the scrutiny these companies have come under, they are still misrepresenting APR.

DCFC79

Stellastor said:

I wish I had better choices, but sometimes these types of loans are the only ones available for people like me with a bad credit score. Anyway, I was hoping to get some support on the question as that could help me potentially to bring a case against this lender and possibly reclaim the money and interest back, which would be helpful - hence asking support in understanding this better?

I see we have another who has been taken in by the score.

Who has given you this poor score ?

There 2 other agencies who will rate you and on a different scale.

Now are you getting to see where Im going, your score means nothing for loans etc as no 1 and i mean no 1 can see it, your history is whats important as that is what lenders etc see.

So my second question to you is whats on your history ?

macman

Unfortunately, the very act of using payday loan companies means that you have probably cut yourself off from getting credit from reputable lenders in the foreseeable future. Once they see 'Shark Payday Loan Co. Ltd' on your recent history, they assume that you are a bad risk who cannot get credit elsewhere, and so the cycle perpetuates itself.

Stellastor

None of you is helpful, I am afraid, can someone read the question, please? 

Why is their Representative %APR lower than another lender who charges lower daily rate in the light of the regulation, which states that: ‘the rate of interest, and whether it is fixed or variable or both, expressed as a fixed or variable percentage applied on an annual basis to the amount of credit drawn down’ (CONC3.5). 

I don't need advice on my bad credit, thank you, I know it's bad. 

Shakin_Steve

Try reading post #5, it's the best you're going to get from me.

Shakin_Steve

And, if you want to do a sum, divide 68.7 by 365. That would give you the daily interest rate if the loan were repayable over a full year, which it isn't.

TrickyDicky101

I *think* that the key description in Safety Net's info on their website is that the "Representative APR is 68.7% (variable)".
Relevant bits are in bold.
It's representative and variable because the 0.8% is on a simple interest basis (no compounding) and capped and thus the APR depends directly on the term of the loan (ie how long its borrowed for/how long interest is actually charged).  Take the following example:

Borrow £100 for 1 day
Interest charged:    £100 * 0.8% = £0.80
What's the APR here? That's really easy:    0.8% * 365 = 292%  (which is also quoted elsewhere on Safety Net's website)

Borrow £100 for 40 days
Interest charged:     £100 * 0.8% * 40 = £32
APR:     Also 292% (this is simple interest) because calculated as 32% * 365 / 40 = 292%

However, because interest stops at 40 days the APR will fall if loans are repaid over a longer time span than 40 days:
Borrow £100 for 365 days
Interest:    £100 * 0.8% * 40 (capped) = £32
APR:     32% * 365 /365 = 32.0%

So because Safety Net quotes 68.7% it is implying that the average term of their lending is:
32% * 365 / 68.7% = 170 days