While more and more consumers are finding themselves in need of quick loans, the Consumer Finance Association has come forward in order to dispel the rumours swirling about in regards to the short term loans sector.
John Lamidey, chief executive of the CFA, said that he speaks to politicians, government officials, money advice agencies, and customers regularly in his role as chief executive for the instant cash loan industry trade association. Too much confusion is plaguing all of these parties in regards to the types of lending CFA members are offering, Mr Lamidey continued, adding that these short term loans can prove quite useful in meeting immediate opportunities or needs and avoiding debt in the long term, provided repayment is carried out promptly and in full.
In order to put these rumours to rest, the CFA has published a list of the most common misconceptions regarding the payday lending sector, including several facts pertinent to the issues. One such commonly misunderstood subject is that of how the high Annual Percentage Rate, or APR, of an instant cash loan does not equate to a loan that is expensive to repay.
It is a regulatory requirement to list an APR on an instant cash loan, even though such a measurement is wildly inaccurate for the industry because the APR is an annualised rate more suitable for long-term loans, yet payday lenders typically require repayment in full in 30 days on average. The interest rate does not indicate the cost of repayment on the loan, with many industry experts calling the high APR of an instant cash loan as ‘fundamentally misleading,’ as it would be the same as referring to the annual cost of car hire to be £15,000 a year, yet the daily cost of a rental car would only be £40.
Another fact that many consumers do not know is that unauthorised bank overdrafts are actually much more expensive to pay back on average than if the same amount of cash were borrowed from a payday lender. In one example, it would cost around £250 to repay a £200 instant cash loan after 30 days have elapsed (with a 1,413.1 per cent APR) – yet it could cost as much as £350 to repay the same amount over the same period of time on an unauthorised bank overdraft- and the APR on such a repayment would be 90,888.9 per cent.