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.
