If an APR cap was to be introduced, borrowers would be forced to get larger loans and spread repayments over many more months – particularly those with poor credit ratings.
London (PRWEB UK) 15 July 2011
The payday loan industry is beset by criticism, with many calling for an end to four figure APR rates. In most people’s eyes the solution is simple, place an interest cap on all loans. However, for the Director of one payday loan broker, this could actually prove to be more dangerous for borrowers.
The short term loan industry has blossomed in recent years. As consumers find it increasingly difficult to make ends meet, more are drawn to taking out payday loans. Consequently there has been an equal boom in lenders and competition within the industry. However, with a lack of legislation on interest rates, APR continues to run into thousands of percent.
Simon, a Director at leading payday loan broker Payday Power, claims that this isn’t the whole picture though “APR simply isn’t representative of the actual cost passed on to borrowers. For instance, in relative terms, our customers actually tend to pay around 25% on top of the amount borrowed in interest. Whilst I accept that this is higher than most banks, it’s nowhere near as imposing as the 1,737% we are required advertise by law.”
To many consumers, a rate of 1,737% may seem extortionate. However, within the payday loan industry this is about average; in fact there are a good number of lenders that charge in excess of 4,000%. However, according to Simon, this is much better than the alternative “People often choose payday loans as a last resort. They need cash to cover a temporary shortfall, maybe a car repair or an unexpected bill. It’s essentially small amounts of cash for a short period.”
“If an APR cap was to be introduced, borrowers would be forced to get larger loans and spread repayments over many more months – particularly those with poor credit ratings. This could mean that they actually end up paying more interest on money that they didn’t even want or need.”
Simon concedes that there does need to be some form of legislation, but a standardised cap isn’t the answer. “Customers need to feel secure when they’re borrowing money” he continues. “At the moment the industry is something of a free-for-all. Whilst we work hard to ensure that Payday Power offers the best levels of service and protection for customers, not all lenders employ the same level of scrutiny. Solutions need to be found, but they should have the best interests of borrowers in mind and not simply provide a reactionary response to controversy.”
About Payday Power
Founded in 2008, Payday Power is a leading broker of online payday loans. Part of the Reset Finance group, they enjoy the backing of a number of major lenders to help get the best deal for customers. Payday Power offer payday loans of up to £1,250 at a typical APR of 1,737% - equating to around £25 per £100 borrowed or 25% of the total amount – and are committed to responsible lending.