The Eurozone, which comprises of the 17 countries which use the euro, showed an increase in their economy of 0.8% in the first quarter of 2011. The growth was largely driven by Germany, one of the powerhouses of the zone, which grew by it’s GDP by 1.5% in the period in question.

The major surprise in the results was the performance of Greece which grew by 0.8% in the three month period, despite the country likely needing a second bail out in the coming months.

The results showed once again the split in the relative strengths of the countries making up the EU, with the core axis of Germany and France continuing to show strong growth largely driven by domestic demand. In fact,France showed it’s strongest growth in GDP since 2006.

By contrast other members of the Eurozone continued to struggle, most notably Ireland, Spain and Portugal which are struggling to deal with a strong euro and high interest rates. Portugal in particular has been the latest victim of the financial crises with its economy shrinking for the second quarter running, meaning that it is now officially in recession.

The mixed fortunes of the Eurozone shows the dilemma facing the European Central Bank which must decide on a monetary policy which aids those countries which are struggling financially while not impeding the strong growth of France and Germany.

It’s not only people that need the occasional short term funding.  Saab, the Swedish car manufacture, had to stop production of cars over a month ago because it had run out of money.  Normally this would result in either a fire sale or the site being mothballed until underlying trading conditions were considered better, something which occurs huge costs when production needs to be restarted.

Unsurprisingly, Saab executives didn’t like the look of either option and choose a third way instead.  The third way was the to secure $88m of short term funding from an investor in it’s parent company Spyder Cars.  The loan is in the form of a six month convertible loan note which will convert into equity if repayment terms are not met.

The loans was provided by the Gemini Fund, an investor in the parent company, and was provided to allow Spyder Cars to continue to seek fresh capital from Russian or Chinese sources.  The Swedish Debt Office having recently approved an investment up to 29.9% of equity by Russian businessman Vladimir Antonov.  This investment is not considered enough by Victor Muller, the Chief Executive of parent company Spyder who is reported to be talking to several Chinese companies including Great Wall Motor and Jiangsu Yueda Group about further funding.

After months in the doldrums, mortgage lending in March 2011 rose by 21% according to lenders, although it still remained 2% lower than in March 2010.

The month on month rise is good news and has been driven by a lower combination of February mortgage applications being lower than expected, mortgage availability increasing and remortgages continuing to show strong performance as people worry that higher base rates will be coming later this year. February had show the highest level of re-mortgages for over two years and March has continued to build on this.

The concern over higher mortgage rates has been caused by the increasing hawkish stance of the Bank of England, with three members of the Monetary Policy Committee voting for interest rate increases last month, and also increasing inflation rates. With inflation now double the Bank’s target many suspect that it is only a matter of time until base interest rates rise. A recent BBC poll of economists showed that the majority of them expected an increase in interest rates within the next three months.

This concern over interest rates has had a two-fold impact on the mortgage market, with fixed rate loans, once the most popular in the UK, now falling out of favour as buyers look for more flexibility with their home loans. In addition, as we noted above many more people are looking to re mortgage before any increases kick in although in reality the increases have probably already been factored into the current rates being offered for home loans.

Recently, the press have once again slated the £60 billion short term loan market and the participants within it.  However, recently a number of suppliers to the online payday loan market place have been fitting back and their weapon of choice has been the humble London taxi!

Why are Short Term Loans so controversial?

The reason for the controversy over online short term cash loans is due to the reported APR (Annual Percentage Rate), which is often into thousands of percentage points. As part of our research for this article we did a quick trawl through the internet to find what % APR various lenders reported as ‘typical’. The results were as follows:

Wonga.com APR 4214%
Quick Quid APR 1734%
Payday UK APR 1286%
Payday Bank UK APR 1355%
Uncle Buck Payday Loans APR 2100%

When you see these figures you can understand why the press get up in arms about short term cash loan providers. However, they miss one vital fact about these type of loans, the A of APR which stands for Annual. While it is a legal requirement to display the APR of the loan, short term loans were never meant to be considered as long term financing, in fact they are just the opposite as suggested by their name.

Typically, a short term loan will be outstanding for just a couple of weeks – in fact if you borrow £200 for 14 days from one of the more prominent short term loan providers you would have to repay an additional £33.88, which sounds all together more reasonable than an APR of over 4000%.

OK I understand that, but didn’t you mention a taxi before – where does that come in?

Short term cash loans and taxis

As we mentioned before CEOs of loan providers are hitting back at all the negative publicity and are comparing their loans to jumping in a taxi home after a big night out. While it may not be the cheapest option out there, since you can always get the underground or bus, it is fast and convenient and it is this you are paying the privilege for when it comes to the interest on your unsecured loan.

They even take the analogy further and say another option is to just jump on the tube without paying and take your chances. But in this case getting caught results in a fine that is more than the tube fare and is probably also more expensive than your taxi ride depending on where you live. This is compared to running up an unauthorised overdraft or exceeding the limit on the one you have resulting in penalties from the banks.

While we don’t always agree with some of our competitors in the market place we have to agree that it’s not a bad comparison to make to a short term loan. The reality is that whatever you think of them payday loans, cash advances or whatever else you want to call this type of unsecured loan, fill a very real need for people caught without short term funds and for them short term loans are an important lifeline until their next paycheck.

If further proof was needed that both short term and payday loans are here to stay then it was provided by the latest announcement from Wonga, the major shortterm lender in the UK.

Despite being only four years old, Wonga have just raised an additional £73 million for expansion capital. The funds were raised from respected US venture capital firms, including Oak Investment Partners and Meritech Capital Partners.

The money will be used by Wonga to continue to grow their customer base. As part of the press release for the fundraising round, Wonga stated that they have provided short term loans to some 1.8 million customer since their launch, providing cash advances to those who were short of cash

While the growth of Wonga has mirrored the rise of payday and short term lending in the UK it has not been without it’s critics. With payday loan lenders in particular attracting a lot of negative publicity for loans which can have APRs of up to 400% before they have been repaid.

Wonga has hit back at these critics by noting that the majority of it’s customers only borrow funds for 7 days and with that sort of time frame a £200 loan would only cost £19. The short term loan provider also points out that first time applicants are restricted to a maximum loan of £400 initially.

The nationality of the latest round of investors is interesting as it shows that the UK payday loan market is attracting the attention of some significant US loan companies. While short term lending has shown explosive growth over the last few years in the UK it still lags well behind the US in terms of lending. It is this lag which the major US lenders are hoping to exploit in the UK.

London major Boris Johnson has walked into a hail of criticism for accepting a sponsorship deal with short term loans provider – Wonga.com. Under the terms of the sponsorship Wonga will provide free transport home for the hundreds of thousands of revellers who plan to celebrate new year eve in Central London.

Major rival Ken Livingston was keen to make political hay out of the sponsorship with his office describing the practice of payday loans as “legal loan-sharking”. The main concern appears to be around quoted APRs of 2,600% and above, which while real do not take into account the short term nature of the loans.

In a bid to ease the criticism Boris cautioned borrowers

“to always be careful if borrowing money and to be particularly cautious of punitive interest rates.”

Here at short term loans, we believe the sponsorship is a storm in a tea cup, with the vast majority of Londoners delighted to be able to jump on some free transport home at the end of a long and tiring evening regardless of who is paying for it.

While there are some real issues to sort out within the industry, particularly stamping out the unethical payday lenders who have sprung up sensing there is a quick buck to be made, we believe petty squabbles over the festive season are not the place to try and resolve them.

One of the more common questions we are asked is what is the difference between a Short Term Loan and a Payday Loan? The answer is not a lot. Short term loans have been around for a very long time and do exactly what the name says, offer loans to people over a short time scale typically between 1 and 31 days. The are also know as cash advances or even fast loans in certain circumstances.

By contrast, payday loans are a relatively new invention. These type of loans originated in the US and like a number of things which start in America, the concept of a loan until pay day slowly migrated over to the UK. This has been helped in no small part to the recession which has made money tight for many people. As with short term loans, the name of the loan is pretty self explanatory – you borrow money until your next pay day.

The difference between the two is that payday lenders typically require that the money is paid back on the day you are paid. If you have ever borrowed money in this way you will know that the lender takes the loan amount plus interest from your bank account as soon as your wages hit your account. This ability to recoup the money on pay day is a key component of these types of loan and is what distinguishes them from “short term loans”.

The distinction is pretty gray however as most, if not all, cash advance lenders will allow you to roll the loan over to the next month. In fact, the roll over of the loan is relied upon by the lenders as it is how they make their profit.

Short term loans are all about marketing

In reality the difference between the two terms is due to marketing, a company called Wonga.com was launched into the short term cash loan market in 2007 and had a bit an issue. What exactly was their Unique Selling Point, or USP, as it is know? There were already a large number of lenders in the market place all offering variations on payday loans which is why you see today numerous lenders offering things like

Cash Loans
No Fax Payday Loans
Pay Day Loan
Faxless Payday Loans
Cash Loan
Instant Payday Loans
Quick Payday Loans
etc

The creatives at Wonga put there heads together to try and come up with something that would make the company stand out from the rest. Which was when some bright spark noticed that the one common requirement of all the lenders was that the loan ended on payday. By offering flexible, but still short term, loans Wonga could immediately make itself stand out from the crowd. This positioning was very effective and when you review Wonga.com today you can see just how effectively they have targeted the term short term loans, ranking at number one in google for a number of variations of the term.

In fact, so successful was there positioning that a number of companies have followed suit in also targeting these terms in their advertising campaigns, unfortunately not many have shown the originality of Wonga. This can be seen in various phrases which are now the target of lenders
Cash Loans became Short term Cash Loans
No Fax Loans became No Fax Short Term Loans
Faxless Payday Loans became Faxless Short Term Loans
Instant Payday Loans became Instant Short Term Loans
and finally
Quick Payday Loans became Quick Short Term Loans

No very original or inspiring really! Despite the lack of marketing guile, both types of loans have become hugely popular in the marketplace. In fact many of the companies now advertise extensively on the TV. Not bad for the tired old concept of short term loans that some marketing executive dusted down.