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to be mad that companies can advertise APR's of over 2000% to the vunerable

(25 Posts)
microfight Mon 27-Jun-11 14:58:10

I just saw an ad for a quick loan and the APR was just under 2000%!
Am I being unreasonable to think that these type of loans should not be allowed to advertise as a quick fix for being short one month. And if they do advertise they should spell out the repayments rather than a quick small print as a percentage APR at the end of the ad?

Meglet Mon 27-Jun-11 14:59:19

YANBU.

charliejosh Mon 27-Jun-11 15:01:07

YABU. These loans are offered on a short term basis to people with bad credit. Therefore, a week after taking out the loan (for example) the repayment is actually only a small amount above the initial loand value. How do you expect the companies to make any money if they dont charge such a high apr on a short term loan? They are already taking a risk by offering the loan to a client with poor credit

LyingWitchInTheWardrobe Mon 27-Jun-11 15:03:11

Hmmm... just because somebody's vulnerable doesn't mean they have to be shocking at maths. As long as the APR is pointed out and the full repayment cost is given to anybody enquiring, then I really don't see what the issue is.

cornflakegirl Mon 27-Jun-11 15:05:14

As far as I can see, they're aimed at people who want to borrow a smallish amount, and are happy to pay £10 (or whatever) to avoid paying higher overdraft fees. It's all clearly explained, and I don't think that APR is a particularly useful measure for this type of loan.

tazmin Mon 27-Jun-11 15:05:43

ive seen them much higher than that, advertised on the telly

knittedbreast Mon 27-Jun-11 15:07:17

there are some for 3000, of course its stupid and should be stopped from being advertised on tv

microfight Mon 27-Jun-11 15:08:25

Because people who are in such a bad situation that they have to take out these loans can ill afford to pay at such a high rate and if they default they will then not be taking the loan on a short term basis and will be accruing interest upon interest.
I understand about risk but just think the APR % should be more transparent, I had to pause my TV to read the small print flashed up during the ad and I think that some people could perhaps get themselves into more problems because the ads make it all look so lovely!

zukiecat Mon 27-Jun-11 15:11:05

Message withdrawn at poster's request.

LyingWitchInTheWardrobe Mon 27-Jun-11 15:12:03

Well when somebody rings up the company wanting a loan, the APR and the amount will be transparent, won't it? The company will tell them. If I applied for a loan from anywhere, I'd be told the total repayment, monthly repayment and APR. APR stated is a legal requirement.

2000% you can work out in your head anyway... confused

zukiecat Mon 27-Jun-11 15:15:24

Message withdrawn at poster's request.

MrsKwazii Mon 27-Jun-11 15:15:52

At least they are up front and honest about the amount that people have to pay. Surely these companies are better than doorstep loan sharks?

microfight Mon 27-Jun-11 15:23:20

The ad has just been on again and it doesn't say anything at all in the ad other than we can get cash to you within an hour and then flashes up quickly the APR.
And in answer to people just get a loan which will cost them a tenner, all they could get for a loan payment of £10 on those APR's is about 25 quid! And that's if they pay it back in a week. If they got a loan for £100 for a month it would cost them £166 in interest plus the original £100. I don't reckon they will make it that transparent do you?

CogitoErgoSometimes Mon 27-Jun-11 15:31:37

I'm uncomfortable about a lot of the advertising for financial products generally - especially ones offering loans or credit cards. The APR information is all there because it has to be by law but the tone of the adverts is usually very seductive with words like 'quick' and 'easy'. And that applies just as much to Barclaycard as it does to the payday loan people

However, I don't think it's reasonable to limit the borrowing of money to people who already have it. We have to give people with less money the chance of a leg-up in life, even if they have to pay more to get the cash.

MamaChoo Mon 27-Jun-11 15:37:38

APR stands for ANNUAL percentage rate. Ths is how much you would have to pay if you borrowed that sum for a year. But most are 15-45 day loans. As lying says, you need to know the total repayment not the legally required APR.

fuzzpig Mon 27-Jun-11 15:39:42

I certainly agree it's better than the Provvy man. I do think it's pretty nasty though, the ads are so manipulative. (well duh, they are adverts after all...)

It's like the whole sexualisation-of-children thing - which also gets my goat - it's wrong that the big companies take advantage of the trends, but the problem is cultural (buying on tick is normal, needing the latest gadgets etc etc) and sadly much bigger than "don't let the companies do it".

boysrock Mon 27-Jun-11 15:40:22

Yanbu here you go

fuzzpig Mon 27-Jun-11 15:42:14

To be fair these adverts (as well as those for cars etc) do have an example of monthly payments and total amount etc - so in that sense they are sort of transparent, at least to those who are comfortable with numbers. The amounts are truly shocking though sad

TrilllianAstra Mon 27-Jun-11 15:42:35

Huge APRs don't actually equate to huge amounts of money over a short time.

What needs to be advertised is the actual repayment amount: if you borrow £100 for 2 weeks you will pay back.. what?

Coool thing from Moneysavingexpert.com

If someone lent you £20 and said "pay me back in a week, then buy me a pint (£2.75) and we’re sorted", what’s the equivalent APR?

Martin’s Answer and Explanation: The correct answer just over 82,000%. This is based on the fact that £2.75 on £20 is a 13.75% a WEEK interest rate. If that were to continue for all 365 days in the year including compound interest, the rate is just over 82,000%, meaning you’d owe over £16,000 (820x£20)

Now of course, the compounding of this is questionable. It assumes that because you must buy a pint if someone lends you £20, you would thus buy a pint and a half if someone lent you £30. Yet in reality it doesn’t work that way, it’d probably be just another pint. However if we focus on a pint as costing £2.75, and assume its a monetary value then the question works.

The aim of this question is to show the confusion around APRs and the real costs of borrowing. Many people often talk about 1,500% APRs being hideous, whereas actually if you’re borrowing over a day it may only be a few pence, something people would say is reasonable, whereas over 10 years it’d be crippling.

--
one of the best comments:
Yes, I think the compounding is more than questionable If you don't repay your friend after a week, I'm sure you'll just buy him a pint and extend the loan for another week (for another pint)
So at the end of the year you can get away for "only" 52 pints (715% APR)

microfight Mon 27-Jun-11 15:44:47

I think we know that APR is Annual percentage I worked my calculations out based on the annual percentage but the loan only being for a month. I don't think it is giving anyone a leg up to offer them a loan for £100 and expect £260 back 30 days later.
I think what I am saying is that if someone is in such dire need for a loan it is unlikely they will be able to service the debt. That is why I think the ads should be more transparent not just say it's easy blah blah because borrowing at those rates is not easy to pay back at all.

CogitoErgoSometimes Mon 27-Jun-11 15:51:13

What if that £100 was to buy a ladder and a bucket etc. and got someone going with a window-cleaning round? I don't think it helps to patronise 'poor people borrowing cash who have no idea what they're getting themselves in for' (I paraphrase) when the rest of us are quite happy to sign up for hundreds of thousands in a mortgage or buy things on credit cards. Somehow, that's OK.

microfight Mon 27-Jun-11 15:53:04

boysrock
thanks for that link

Andrewofgg Mon 27-Jun-11 17:02:30

YABU. They are lending small sums to bad risks - which means a lot of paperwork and a lot of default. Which adds up to high interest.

microfight Mon 27-Jun-11 18:45:20

Cogitoergosometimes
I can't think of a worse way to borrow money to start a business!!

cornflakegirl Wed 29-Jun-11 15:22:08

I think APR is a confusing measure. For instance, if you borrow £100 at a flat interest rate of 12% (ie, you pay back £112 in total) and pay it back in 10 monthly instalments, your APR is 28.6%.

But if you borrow £100 at a flat interest rate of 13.1% and pay it back in 11 monthly instalments, your APR is still 28.6%. Even though you now pay back £113, and the loan company will make more money out of you (having a much lower flat rate themselves, therefore being a net winner, even though they're financing for longer).

If companies are misleading people, that's bad. But if they're saying, I'll charge you £20 to lend you £100 for a week, then I think that's more informative than an APR calculation.

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