Pressure groups were recently angered by the government’s refusal to limit instant cash loan providers and other high-interest lenders, short term loans specialists report.
The government refused to institute interest rate caps on many forms of consumer credit as part of its recent review of the matter, leaving doorstop lenders and providers of no credit check loans alone, which has incensed pressure groups who wished to limit these firms from charging interest rates they refer to as ‘exorbitant.’ However, the government did announce a voluntary new programme that would encourage High Street shops from tempting customers to sign up for their store cards by offering discounts.
Micro-loan companies have been under fire from pressure groups for their interest rates. These pressure groups cry foul at the APR on these loans, which may appear to be huge at first blush, as they range from 2,500 to 5,700 per cent, yet neglect to point out that Annual Percentage Rate calculations are optimised for long-term loans of one year or greater, and are completely inappropriate for shorter term payday lenders.
Why then do payday advance firms open themselves up to criticisms by advertising such massive APRs on their loans? The problem is that instant cash loan firms, which are a recent import from the US, are bound by law to reveal their rates as calculated by APR, even though doing so results in massively inflated figures that industry experts say don’t reflect the real cost of loan repayment.
These older regulations simply do not take into account how inappropriate using an APR is to compare a shorter term loan to a more traditional one, as these loans simply did not exist in the UK a few short years ago.