One instant cash loan provider has begun to pay its own customers to market its short term loans to their Facebook friends, even though the interest rates charged by the lender are in excess of 20 times what it would cost a borrower if they used a typical credit card.
The payday advance lender’s existing customers will be given £20 for persuading one of their Facebook friends to take out a loan with the company, with prospective borrowers being given discount codes on their first loan that entitles them to a £5.50 transaction fee exemption. However, research shows that taking out £400 from the lender over the period of just one month costs a massive £199.98 in fees and interest, while the fees associated with the same amount from a traditional lender – £30 for an authorised overdraft from RBS or £5.88 on a credit card from Barclays – are much more affordable.
Payday lenders often state that they are the last solace of borrowers with bad credit, as there are no credit checks required for many instant cash loan providers. However, credit cards with high rates due to poor credit are still massively less expensive than payday lending, as a Barclaycard with a 29.9 per cent interest rate would still only cost a borrower £10.61 in interest for a £400 cash advance.
The payday lender’s marketing scheme being employed to entice new lenders through the Facebook friends list of current customers has been called a ‘shocking’ ploy by many consumer campaigners and charities. Debt Support Trust’s Stuart Carmichael said that many people could be lured into borrowing who may not even need it.