One Bolton MP has recently called for regulations to be made to rein in the providers of instant short term loans in the UK, as concerns over sky-high APR interest rates on these instant cash loans run rampant – but are the costs truly that high?
David Crausby, MP for Bolton North East, has come out in support of plans designed to increase levels of consumer protection, after adding his signature to an Early Day Motion which asked the Government to place restrictions on the amount of interest that can be levied on payday advance loans and other forms of short-term lending. This follows on the heels of recent news that some of these lenders advertise APR interest rates in excess of 4,200 per cent, yet what many fail to realise is that the annalised percentage rate method of calculating interest is inherently flawed when used to evaluate the interest on instant short term loans, which will run for only 30 days on average before they need to be repaid in full.
Mr Crausby remarked that he felt it was wrong that lenders can charge such ‘huge’ interest rates, claiming that such exorbitant rates will hit low income earners the hardest. However, industry experts counter that the actual cost of loan repayment is typically around £10 to £20 per £100 borrowed, adding that the only reason payday lenders use the APR method in their adverts is that they are required to do so by law.
The Bolton MP was heedless of these arguments, insisting that payday lenders are exploiting poorer UK households, and called on the Government to take stops to more closely regulate the industry.