Payday lenders charge literally usurious interest rates, according to the the Rt Rev Justin Welby, adding that all too many desperate households in the UK have to resort to payday advance loan providers because of their financial situation.  The bishop says that Wonga, the most well-known provider of short term loans in the UK, with its 4,214 per cent APR payday loans, left him deeply worried that people will become desensitised to such shockingly high interest rates and accept them as normal.

The spiritual leader added that it’s been considered usurious to charge interest rates higher than 4,000 per cent ‘since the time of Moses,’ adding that nothing there was nothing Wonga could do or say to convince him otherwise.  While he stopped short of calling out lenders for acting improperly or immorally, the bishop did say that payday lenders have become the only port of call for Brits in many regions of the UK where credit unions and traditional banks are simply unavailable.

Welby says the massive proliferation of payday lenders reflects the number of people who have been having to resort to collecting from church foodbanks on a monthly basis in order to keep their families fed.  The bishop said he found it both horrifying and bizarre that so many have fallen prey to predatory lending due to the poor economy, and he was shocked to see the number of people coming to local foodbanks before the end of the month due to households running out of cash.

Ferratum’s own resarch demonstrates that 52 per cent of their high interest rate short term loans are going towards paying unexpected bills, with the most popular being vet bills and car repairs.  However, many other reasons given by survey respondents for why they sought out a high APR loan from Ferratum included making insurance payments or, in the case of one customer, to simply allow them to remain ‘afloat.’

Lending industry experts have been highly critical of payday lending, as the exorbitant rates and fees associated with the unsecured credit can prove to be highly unsustainable in the long run, especially if customers take out a series of payday loans over time.  Ferratum’s customers are possibly in danger of such a fate, as the lender’s own research indicated that 7 out of every 10 of its customers have taken out at least two loans since last summer, when the lender launched in the UK – and some of these customers had as many as eight payday loans.

Sales and marketing manager for Ferratum UK, Ian Porter, commented on the new research, stating that payday lending has grown to become ‘an integral part’ in how Brits manage their financial affairs.  While Mr Porter claimed that payday lending provides a secure, efficient, and fast way for Brits to meet short-term money needs, many debt relief charities have had strong words for the payday lending industry, refuting its claim that unsecured lending is a ‘responsible’ choice for those in need of financial advice.

Hi everyone,

I’ve lost track of the number of times people have asked me about the annual percentage rate (APR) and what’s included within the calculation when applied to payday loans. There’s obviously a lot of confusion out there so I thought  i’d record this video to clear up a few things.

If you’ve already tried searching for explanation or definition of APR, you’ll no doubt be aware that it’s extremely confusing. Watch the video for my own personal take on APR and what I believe is the best way to compare payday loan rates at the current time.

As always, I’d love you to hear what you think about APR and payday loans by leaving a comment below. Also, feel free to share this video with your friends on Facebook and Twitter.

Speak soon,
Martin Smith

Transcript of this video: APR Explained

Hiya, my name is Martin Smith, and welcome to the Payday Loans Information Centre.

Today I’ve decided to cover off a subject that many people associate with payday loans, and that’s the dreaded APR (or Annual Percentage Rate).

I know this is something that causes a shed load of confusion because if it wasn’t, my inbox wouldn’t be as close to breaking point as it is now with all the questions I’ve been getting about it. And in case you were wondering, YES, I read every single one of them.

Anyway, I promised I’ll make this video quick and simple, and don’t worry, I’m definitely NOT going to run through the obscenely complicated APR calculation because frankly, my brain just ain’t that big enough.

First off, if you just want some headline information on what a payday loan actually IS, get yourself back to the home page of this website and click on the welcome video in the centre of the screen. I am genuinely humbled and touched by the number of people that have commented on that video so if you HAVE got the time, I’d love to hear from you as well.

Right then, back to APR.

By the way, If you don’t know what the heck APR is and when it is used, the next time you catch one of those lovely payday loan adverts on the telly, this is the number that’s often quoted at the bottom of the screen as something like ‘Typical APR X thousand percent’.

It’s the number that gets everyone in a tizz and is often used by politicians and people in the media as a way of demonstrating just how expensive payday loans can be.

But what exactly IS APR, and what does it mean?

Well, as I mentioned above, APR stands for Annual Percentage Rate and is supposed to represent the interest and fees on a loan, expressed as a percentage of the original loan value, but calculated for the whole year, rather than just a monthly rate.

Like it or not, the payday loan companies are required by law to clearly state the APR on all their advertised loans, which is why you notice those obscene X thousand % figures all over the place.

The idea here is that customers have a standard way of comparing different loan providers and can make up their mind based on fact, rather than a glossy website or clever marketing and sales.

I mentioned earlier that I won’t be showing you the APR calculation because it’s too complicated but there was actually another reason, and that’s because I think that APR when applied to payday loans is total load of crap.

I’m serious. It’s completely meaningless and for once I AM with all those payday loan companies that have complained till their blue in the face about APR, and why it’s misleading when applied to payday loans.

I shall explain.

I’ve spoken about this already in the other videos but payday loans are NOT and should not EVER be used as a form of long term credit.

So if you need to borrow money for anything more than 30 days, talk to your bank, go to a Credit Union, whatever, just don’t get a bloody payday loan cause you’re just setting yourself up for world of pain.

With that in mind, and again returning to APR, I have no idea why is this measure for calculating annual (or long term) interest is being used to compare short term payday loans that are supposed to be paid back within a month.

It’s crazy, and given the fact APR is also applied to other forms of short term borrowing, like overdrafts, AND not all companies include things such as late fees the in their APR calculation, I’m not surprised people are confused about what interest they’re paying because I sure would be.

So what’s the answer? If we really do need a payday, how the heck are we supposed to compare rates? Well, it’s actually simple really, you ask the payday loan company to provide a total cost of borrowing for the loan you wish to apply for.

Most companies are actually starting to quote this alongside APR now so it’s nothing new but as far as I’m concerned the total cost of borrowing, which should be quoted as a straightforward £ figure and includes ALL the interest, fees and charges on a payday loan, is 100 times easier to understand than APR.

And that my friends, is a fact.

It may take slightly longer to get the information, but I sure you it’ll worth it. With the total cost of borrowing figure, you’ll categorically know EXACTLY how much you’ve got to repay the payday loan company, which will no doubt help when it comes to managing your money and budgeting for the repayments.

Remember there’s loads more information, videos, features and news throughout the rest of this website so feel free to browse away at your leisure. I’m Martin Smith, thanks again for watching, and I’ll see you on the next video.

The information website on all things payday loans, Paydayloans-uk.org came up with the bright idea in a commentary it published the other day, but does not say whether it is actually being serious or just being tongue in cheek.

Payday loans, it says, are normally taken out for life’s little emergencies and are normally meant to be paid back as soon as possible, otherwise one starts racking up some big interest rates and there is a serious danger of sliding into real debt.

What makes the commentary stand out as being original as the advice to take out a payday loan so that one can take up an interesting hobby, with cooking classes as being given as an example.

Now, most of us would wonder why anybody would be so daft as to take out a loan attracting an interest rate of anything up to 4000% per annum for anything so trivial as a cooking class, but these doubts of somebody’s financial priorities and plain common sense are obviously not seen as an impediment by Paydayloans-uk.org.

The payday information portal, obviously full of useful gems of advice, points out that many people with full time jobs often feel that something is missing in their lives. The advice is to find something like a cooking class to focus on.

The website even gives some hints about what sort of cooking class to take a loan out for. They mention the fact that one can sign up for a general cooking skills class or a specialist cooking class like Japanese cooking.

There is obviously a concern that with pay day perhaps being a couple of weeks ago, and the coking class organisers impatient for their course fee, taking out a short term loan to cover the little expense is certainly worthwhile.

It wasn’t that long ago that some payday loans companies were accused of suggesting that people took out loans for tummy tucks, facelifts and holidays to the Canaries. The suggestions caused such a barrage of criticism that they have not been too prominent of late. Perhaps taking out a loan to learn how to cook is a recipe for a satisfying change in lifestyle – even if it gets you into debt!

The current state of the UK economy has left many hard-up Brits having no recourse when their high street banking providers refuse to provide them much-needed credit.  This has led millions to turn to payday loan providers in order to get the cash they need, but these short term loans are accompanied by exorbitant interest rates and late fees that can cripple a borrower in the long term – especially if a repayment deadline is missed.

Iain Duncan Smith, Work and Pensions Secretary, recently announced that the Government has plans to do whatever it can to break the stranglehold these lenders have on the British populace.  The government minister called for a higher number of credit unions to be founded in order to provide less expensive lending to lower income earners, highlighting the massive rates these ‘predatory’ loan providers are charging their helpless customers.

Mr Duncan Smith’s department came forward with examples of these charges, highlighting how one couple taking out a £300 loan in an emergency had a bill in excess of £2,000 just two short months afterwards – which corresponded to an annualised percentage rate of more than 6,300 per cent.  Other lenders, such as Wonga, offer a 4,214 per cent loan on £100 for a period of seven days, which means borrowers need to repay £112.78 in order to avoid massive late fees.

About seven million people in the UK may be held captive by ‘poverty premium’ lenders, with ministers saying that lower income earners have no choice but to pay more for credit if they find themselves in dire circumstances.

The plan to lend to businesses comes about for exactly the same reason as payday loans have become so successful elsewhere – the difficulty in accessing credit from the ordinary short term lenders like banks.
Wonga began its business initiative on May Bank Holiday Monday and is making loans available between three to ten thousand pounds at interest rates of 0.3% per day.

The CEO of Wonga, Errol Damelin, is pretty enthusiastic about his company’s decision to penetrate the SME loans market and was reported saying that they will provide the same “fast, flexible and short term” system as is available to individuals.

Loans to small and medium sized businesses will be accessible online like ordinary payday loans and the same convenient and fast method will be operating too.

Not everybody is too happy about the drive to provide loans for SMEs. Perhaps predictably, payday loan warrior Stella Creasy who is still waiting for her day in parliament to see how her payday loan interest cap fairs is quite incensed about Wonga’s new initiative.

She was reported saying that the availability of payday loans for SMEs is symptomatic of the lack of help that the British government is giving to the small business community. She pointed out that the government’s own initiative, Project Merlin, has been a flop and business insolvencies have risen by some ten percent this year alone.

Ms Creasy said that the idea that payday loans could actually “help” small businesses who were struggling to survive “beggared belief”.

The lack of easy credit is certainly an impediment for many small businesses in cash strapped Britain at present. Lending to small businesses dropped by a whopping four billion pounds in February alone this year. This was the largest drop in two years according to the Bank of England’s own statistics.

A spokesperson from the Royal Bank of Scotland said that he could not see any sudden change in the amount of cash lent to small businesses in the near future and suggested that businesses would not be advised to take on new debt when the economy was so stagnant.