Payday loans debtors need to know total cost of loan

A leading debt charity has reported that the total number of people with short term loans debt problems has increased by over 100% between 2010 and 2011.

The CCCS – the Consumer Credit Counselling Service, also said that the number of those in debt to an instant cash loan company had gone up by a factor of six since 2009.

A number of complaints have been made about some of the practices of short term loans companies, although spokespersons from the industry claimed that the complaints needed to be taken in context.

The Office of Fair Trading has already been investigating the activities of the top 50 short term loans companies, with action that has already been widely reported, on Yes loans, a short term loans broker.

In addition to this, a group of MPs from a committee appointed to the Department for Business Innovation and Trade has called for stricter lending criteria, especially the way the interest rates are advertised. So far, government has stopped short of calling for a cap on interest rates, although several individual MPs have suggested it.

Some of the bigger short term loans companies, like Wonga, have responded to the criticism and have generally been positive about some of the calls for stricter regulation.

Wonga, for instance, says that the term APR can be very misleading to borrowers as it is a term used for much longer term loans like bank overdrafts. Payday loans and instant cash loans are meant to be foe short term periods only, in which case the amount of interest charged is not as great as has been mentioned. The higher interest fees kick in when the loan term comes up and borrowers are unable to repay the loan.

The feeling in the industry is that it is much better to quote the actual total cost of a loan as a single figure rather than use terms like APR as it is much more realistic.

Reassuring comments from the instant cash loan industry notwithstanding, there still seems to be a lot of reservation about the way the short term loans providers are advertising their products and industry representatives have a fair way to go before they present a more acceptable image.

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