Payday loans: don't forget the small print

Nathalie Bonney's picture

Sitting on the tube last week, I noticed an advertisement for payday loans from Big bold red letters proclaimed “Cash in a flash” and “up to £500 a day!”, next to photos of a happy young chappy beaming away no doubt at the promise of ready cash.  The advert went on to give two guarantees: one, that Moneyshop “don’t tie you down” and two that they “do tie you over till next payday.”

The cheery assurances continued with “we’re right up your street”, followed by a list of places in London where would–be customers can make contact if they don’t want to apply online. The apparent ease with which cash–strapped punters can get their hands on some extra dosh is coupled with the ethos that payday loans are, like credit cards, an everyday, universal form of borrowing.

The premise of payday loans is that workers caught short towards the end of a month can borrow a certain amount of money and pay it back within 31 days, safe in the knowledge that their next pay cheque will cover the costs. By August 2008, applications had more than tripled in a year, reflecting the hard times so many of us faced.

The steep incline is finally descending from its menacing high, indicating that applications are finally slowing down. It’s no wonder then that to counter this slump, Moneyshop’s adverts appear just in time for the spending bonanza that is Christmas. Whereas you might not have given the advert a second glance beforehand, it would probably appeal more post festive shopping trip or expensive night out.

What really annoyed me about the advert is that while it happily displayed its potential £500 payouts, there was no mention of charges or interest rates. What I didn’t realise is that by displaying minimal information Moneyshop keeps in line with the Consumer Credit Act’s stipulations on credit advertisements.

Although in most cases any loans have to display typical APR, this depends on what information the advertisements display. Moneyshop’s poster doesn’t show any repayment details; nor incentives such as a special rate or free gift; or boast that its products are ‘best buy’ or the ‘lowest rates’ and only displays the credit, (without any promise of it being available to people who struggle to get credit elsewhere).

It’s only when you go onto the website that you get some more detail.  The homepage  boasts that unauthorised bank charges cost you more than a payday loan. A £99.01 loan costs you only £9.99 at the moment – that’s 10% interest right? Wrong. The typical APR on this is 260.2%. Failing to pay back the loan within the short time frame would cost you considerably.

Living on credit is dangerous enough with credit cards and overdrafts and I can’t help but feel that these adverts and the approach they are taking is trying to normalise payday loans. OK I’m sure there are one–off instances where payday loans could come in useful: funding someone’s birthday party or booking the family holiday but I can’t ever agree that they should be regarded as a standard form of borrowing.

My other point is that once you start borrowing money to cover the back end of the month, how do you stop yourself from doing the same again, the month after? To quote a well–known advertising slogan: “Once you pop you can’t stop’. Pringles weren’t lying when they extolled the virtues of their salty snacks but at least you have no choice but to stop once you’ve munched your way to the end of the packet. Instead of budgeting your money and working out where to make cutbacks you rely on these loans to tide you over.

Even if you pay back the loan in full every month, based on Moneyshop’s £9.99 offer, you’d spend £119.88 in a year just to borrow money. Sticking to a budget is oh–so–tiresome but a savvy budgeter could no doubt find a few better uses for an extra £120 quid.

Your Comments

Payday loans are actually terrifyingly popular...

So too are the small Provident loans. In fact, I struggle to see what differentiates these people from loan sharks!!

Four times during November and December a member of Provident has dropped a leaflet through my door offering me a £500 loan. That's actively soliciting consumers into these loans and, in my opinion, constitutes incredibly irresponsible lending.

Payday loans with typical APRs like that should absolutely be illegal, in my book.

Payday loan companies are increasingly looking at ways to up their customer base, I myself have found myself in the unfortunate position of having to use payday loan companies services, although I hated using the service I found that the payday loan companies I contacted to be very helpful (which I guess you would!).

I took out a payday loan because I found myself short after a rather large and unexpected bill for a car repair and was grateful that the loan companies were actually there to help in my time of need. Granted the rates are usually higher than those of other types of loan however if the length of the term is taken into account payday loans are no more expensive than cheque cashing or pawnbroking.

I found in my experience that if payday loans are used in the correct way, i.e. paying them back when due, they can be a useful tool to add to anyones arsenal when trying to beat the credit crunch.

I appreciate that unsolicited calls to your door for credit can be really annoying but for those people who don’t have any other choice and as long as the payday loan is used in the correct way and for the correct purpose payday loans could be the answer.

What you saw on tube is an advertising spot for a financial product, as in the case of any other products that go through advertising you will only see the very best part of the product, this is what advertising is about: it presents the advantage of getting the product. If it were an informative spot then I think the interest rates would have been mentioned. Payday loans are on high demand, if they were destructive then people wouldn't want them. Banks will always try to find ways to sell their products, it depends on how responsible we handle our finances, banks depend on our response to their actions. I've just applied for a cash advance loan, should I "accuse" the bank for charging me with interest rates? We are informed about the numbers before we sign for the loan, aren't we?

I worked for a payday loan company in the IT dept I heard the directors devising ways to fleece customers it was shocking, the Payday loan companies are usually run by a couple of savy business men that borrow the money at LIBOR rates and sell it at market rates and take the difference so Libor is 2% they roll over the monthly payment so effectively they are raking 240% until the client pays up the full balance, but they also do other things like charge £25 to transfer the money into the clients account

Hello Lee,

Payday loans industry is one of the best industry that offer best payday loans services for an emergency cash needs. and you working with payday bank that a good opportunity to you. Good Luck !

Nowadays it seems that many of the companies have to be as transparent as possible when issuing these loans. Many will let you know the amount you end up spending if you pay it back within the agreed term. This can be a helpful solution for someone in a position where they know they can pay the loan back nearer the end of the loan period.

Last time i need emergency cash , So i had Loan from money lender  and they give me loan at very low interest rate.

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