Payday loans have an extremely bad rep, and is this justified? According to the Consumer Federation of America, on average, a payday loan company charges you about $17.50 for every $100 you borrow from them. Not so bad, really – that works out at 17.5% interest, which can be even better interest rates than on a credit card.
The real doozie comes later: saving up to pay off the debt, plus interest is bad enough and can take some time, but your 17.5% interest term only tends to last a fortnight; after that, you get another 17.5% chucked on top. Leave it another 30 days and you will find yourself with – yup – another 17.5% charge. It all starts to mount-up eventually.
Payday loan companies are the crooks of the credit industry, and it’s not hard to see why. However, a new payday loan company called ‘fridayfriday.com’ believes it has come up with an ethical service for borrowers: they promise to curb rollover loans and step down intimidating debt collection.
Finally, it seems like people will be able to pay off their car loan comparison fees and meet their mortgage premiums without finding themselves lumped with lifelong debt. But is this really as good as it seems?
Although its name just reminds us of Rebecca Black (much to our irritation), this company seems to be aiming to provide an almost-ethical service, rather than a poorly disguised trap to get people into debt. Out of every £100 loaned, they charge £25, but they have a maximum of three consecutive loans. After this, FridayFriday puts the borrower on one loan, and freezes interest rates at 30% for six months.
Consumer Credit Counselling Services doesn’t agree that this qualifies as ‘ethical’ behaviour though. Although they agree that limiting rollover payday loans is a step in the right direction, the credit is still extremely expensive; especially when you can take out £1,000 a go. 30% of £1,000 is an insurmountable amount of interest to pay for someone who is already struggling financially.
The payday industry is currently under investigation from The Office of Fair Trading due to their sales tactics, which are said to target young people. Lenders are also getting angry that payday loan companies are not reporting when their customers start to fall head-first into debt. This is bad news for lenders who rely heavily on credit reports to analyse the suitability of offering credit.
Outstanding debt (personal) is now at new heights in 2012. In July, it was reported that, in total, it reached £1.410 trillion. Personal debt owes nearly as much as the entire country produces in a year. If the debt was spread out over each adult individual in the UK, we’d all owe £28,704 each (including mortgages). 299 people are declared bankrupt every day and the Citizens Advice Bureaux handled 8,465 cases of new debt issues every working shift. Will FridayFriday really help ease the debt problems in the UK?
This post was written on behalf of Fincar who want to publicise topical financially related content throughout the web.