Payday lenders....

[Papaumau]

As the recession bites and the government start to cut the levels of assistance to the poorest of our society - including the pensioners - and the banks are now being very difficult about lending to people who actually NEED the money we see a massive growth in what has come to be known as "Payday lenders".

We even find these companies advertising on daytime TV where they must think they can find people who are not in work or earning a decent wage.

These companies are only one step removed from loan-sharks as they target the people who are unable to get loans from any usual sources, and because of this condition they are able to charge astronomical rates of interest; in many cases over 2000% APR. ( Proper banks usually charge around 20% APR ).

What many also might not know - that might be considering taking a short term loan from such a company - should be aware that as a form of collateral these companies ask for a post-dated cheque, ( to the date the cash is meant to be repaid ) or they will ask for a banking direct debit to be set up that pays the capital sum, PLUS interest, back on the agreed repayment date.

If there are no funds in the person's bank account with which to pay this direct debit or if the cheque issued, bounces, then the debt rolls over with added compound interest until it very quickly often becomes a large sum of money.

After quite a short time the people who may have taken out such a loan, who are unable to pay it back, may find that they are being chased by finance recovery agencies and risk being made bankrupt for the cash outstanding.

These lenders are in fact aiming their services at people who are in debt and that is why they can give reason for lawfully being able to charge such high rates of interest.

I would hope that anyone reading this posting - that is in that situation - might think VERY seriously about whether to get into the grip of such companies.

Comments please.

[GrannyMac]

Any sort of loan like this should be avoided, especially by people on low/fixed incomes.  They'd be much safer joining a credit union where they can borrow much smaller amounts than banks offer and repay them at low rates of interest.  I've saved with one for years, not for the financial rewards (very little) but because I support the principles behind them.  And, because I'm a regular saver, if I need money I haven't budgeted for, I can borrow it quickly.

[Papaumau]

Excellent point GrannyMac !

The only thing wrong with credit unions - as great as they are - is that they will not lend to anyone who has not been a saver with them for a fairly long time. Your average person that is skint and who might be looking for a short term loan are very unlikely to be savers with a credit union bank.

That is the reason why these payday lenders and the loan sharks have such an easy time; they know that people who need their money have no savings and that makes them easy targets.

[GrannyMac]

Historically people did need to save first, but some credit unions now offer loans without savings.   People can opt to have their pay, or one or all of their benefits paid in like in a bank as security and have the loan payments deducted from the account. Hopefully they are then encouraged to save a small amount, which then obviously helps with future budgeting.
 Some info about them here: http://www.thisismoney.co.uk/credit-and-loans/article.html?in_article_id=428979&in_page_id=9

[Papaumau]

Thanks for that info' GrannyMac as it is good that the government have relaxed the regulations that have previously restricted the flexibility of the credit unions.

That, I did not know !

I still do worry a bit that the credit union banks are going to tie up benefits or pay so that they get the first bite at the person's financial cherry. Many of these people rely on every penny they get from their low wages or their benefits just to subsist and if this money is creamed off before they get it the people who need such loans are going to be forced into a very unenviable situation.

As I said before, these are techniques that the "payday lenders" also use to ensure that they get their money back ASAP.