Payday loan companies are making a comeback with a new wave of television ads promoting high-cost loans with APR values as high as 99.9 percent.
The lender it advertises, Everyday Loans, offers loans of up to £15,000 and has a maximum APR of 299.8 per cent.
Based on the lender’s representative example of a 99.9 per cent APR, someone borrowing £3,000 over 24 months at an interest rate of 71.3 per cent per annum would repay a total of £5,706.
Under FCA regulations, borrowers cannot repay more than double what they borrowed in the first instance.
High cost: Everyday Loans ad promotes a loan with a representative APR of 99.9 percent
Still, there are high-cost lenders that offer loans with interest rates that go well beyond 1,000 percent.
Companies like Cashfloat and Cashasap offer loans with a maximum APR of almost 1,300 percent, while Mr Lender has a maximum APR of 1,462.3 percent.
The highest APR figure seen by This is Money was 1.721 percent, offered by both Payday UK and Tendo.
Representative annual interest rate figures mean that at least 51 percent of borrowers receive the advertised rate, or a better rate. However, some lenders like Fund Ourselves have a representative figure of up to 1,310 percent.
In comparison, major banks offer personal loans at much lower rates.
For Nectar customers at Sainsbury’s Bank, for example, there is a maximum APR of 29.9 per cent. The representative APR figure is only 6.9 percent.
However, problems arise when banks turn away people who have bad credit, as these lenders do not want to take the risk of borrowers defaulting.
To compound this, bank loans usually have a minimum level of borrowing, £1,000 in the case of Sainsbury’s Bank.
However, in many cases, those who take out payday loans are looking to borrow smaller amounts to make ends meet.
Generally, payday loans, sometimes as little as £50, give borrowers access to quick cash to pay unexpected bills or bridge the gap until they get paid.
High-cost lenders are still required to carry out credit checks before granting a loan and are often accused of being much less strict, meaning even those with bad credit can be approved for a loan.
Those who struggle to pay off these loans can become trapped in a cycle of debt, being forced to take out more loans to pay off their debt while the amount they owe continues to rise.
Simon Trevethick, director of communications debt charity StepChange, told This is Money: ‘Last year, we helped more than 180,000 people with their debt, the equivalent of one person every three minutes.
‘What’s more, we’ve seen a significant increase in people turning to our service due to the rising cost of living, with a quarter saying the rising cost of living is the reason for their debt, up from 6 per cent before the pandemic.
‘There is a risk that, as more and more people struggle to keep up with living costs, they will turn to credit to meet their needs, and people are often faced with few sustainable options other than credit at interest rates. incredibly high interest.
“This tends to exacerbate long-term debt problems and trap people in a spiral of financial difficulties.”
Still, high-cost lender Cashfloat said its loans are responsible, as around 90 percent of organic applicants were rejected in the initial stages of the loan process, and noted that it works with the Vulnerability Registry Service to ensure that does not grant loans to vulnerable people. customers.
“We try to go above and beyond to offer customers a product that will be useful to them in an emergency and that will not be detrimental to their finances,” the lender said.
Cashfloat also offers flexible options to borrowers, such as an extra month to pay with additional interest.
The other lenders in question did not respond in time for comment.
However, not all lenders are the same, and those who are unable to pay on time or in full can see their debt increase rapidly and, of course, vulnerable people can still slip through the net.
Ending: Amigo Loans has fallen into administration after attempting to relaunch as RewardRate in 2022
Trevethick said: ‘When opting for any credit product, the first thing you should do is assess whether you can afford the repayments within your current budget.
‘It is also important to assess whether the interest is affordable, as in many cases there may be significant additional costs.
“If you find you are using credit for everyday needs, seek help as soon as possible from a free, impartial and independent debt advice charity like StepChange.”
Given the current cost of living, people are struggling to cope with tight budgets, and it only takes a broken boiler or an unexpected bill for someone to find themselves sinking into debt.
This may mean that more and more people have no choice but to turn to payday lenders.
During the 2010s, at the height of the payday lending boom, television channels were filled with advertisements from high-cost lenders such as Wonga, QuickQuid and Amigo Loans.
In 2014, calls to ban daytime payday loan adverts on television warned that children could be led to believe that payday loans were “fun”, but despite this, a change of law.
However, in more recent years, confidence in payday lenders has seen some decline following the FCA’s regulation of interest rate caps and default fee restrictions.
In 2019, lending giant Wonga collapsed, leading many to believe that the days of payday loans were numbered.
At its peak, Wonga had a market share of almost 40 per cent.
Meanwhile, Amigo Loans relaunched as RewardRate in 2022, following its agreement to pay compensation to borrowers who were sold unaffordable loans.
The company has since stopped lending and entered administration.
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