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

SuperAllyB

TrickyDicky101 said:

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

Surely A means annual so can only be calculated on the basis of 0.8% for the first 40 days then nothing for the next 325.  I suspect they only quote it as a legal requirement.  They are unlikely ever to wait a full year for repayment so APR isn't really relevant to their business model.

Stellastor

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

My understanding is that Representative %APR is different from the Annual Interest, hence asking the question. I am raising this because I took another loan from Satsuma and their Representative example is: £260 loan over 26 weeks, 26 payments of £15.60 per week. Rate of interest 112% p.a. fixed. Representative 535.3% APR. Total amount payable £405.60. 

MinuteNoodles

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.

There is absolutely nothing whatsoever that you cannot live without which would justify taking out a loan at such an expensive rate.

You had a better choice, that choice was to do without and save up rather than buy something on credit and end up repaying twice what you borrowed.

TrickyDicky101

Stellastor said:

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

My understanding is that Representative %APR is different from the Annual Interest, hence asking the question. I am raising this because I took another loan from Satsuma and their Representative example is: £260 loan over 26 weeks, 26 payments of £15.60 per week. Rate of interest 112% p.a. fixed. Representative 535.3% APR. Total amount payable £405.60. 

I don't know how Satsuma is calculating their numbers - back of a fag packet gives me different figures.
Satsuma and Safety Net use fundamentally different charging bases - Satsuma has no cap and from experience their interest is not quoted on a simple basis but assumes some compounding frequency.

Stellastor

What does this mean: The representative example in n CONC 3.5.3R (1) must comprise the following items of information:

(a) 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?