Concern over interest on short-term loans
PUBLISHED: 19:59 18 February 2009 | UPDATED: 13:57 06 May 2010
CASH-strapped residents have been warned against high interest rates being charged by lenders after a St Albans city-centre company started advertising short-term loans at nearly 150 per cent APR. The Money Shop, a national chain with a branch in Civic Cl
CASH-strapped residents have been warned against high interest rates being charged by lenders after a St Albans city-centre company started advertising short-term loans at nearly 150 per cent APR.
The Money Shop, a national chain with a branch in Civic Close, is currently offering "pay-day" loans of up to £500 for 30 days.
The first £100 of the loans is advertised on a "half-price" APR (Annual Percentage Rate) of 149 per cent with the remainder of any sum being charged at the normal rate.
District Councillor and retired banker Chris Oxley, portfolio holder for efficiencies and resources, said: "I really would like to bring to the attention of the public the extremely high rates of interest that are often charged by lenders who are not recognised banks.
"The interest charged on credit cards is already, in my view, very exorbitant but when we see supposedly discounted rates of almost 150 per cent APR it makes me shudder, as it is usually the less fortunate in our city and district who have to pay these horrendous rates."
He added: "There is an organisation in St Albans called the Credit Union in Hatfield Road that will lend money at very significantly lower rates of interest and people who need money may wish to contact them or the Citizens Advice Bureau before borrowing from companies charging high interest rates."
Cllr Oxley, who was formerly the manager of a bank branch, said that although the loans were only supposed to be over a 30-day period, people might be unable to pay off the money and fall into a cycle of debt.
He said that credit card interest rates were also a concern to him, adding: "In my days in the banking industry, 20 per cent interest rates on credit cards were considered to be usurious."
Andrew Bryan, marketing director of the Money Shop, said: "Cash 'til Payday is aimed at people who need instant access to cash but don't want to go beyond their agreed overdraft limit for fear of facing a hefty charge from their bank - some banks currently charge around £30 just for going £1 beyond their agreed overdraft limit and then continual fees while in the unauthorised overdraft.
"The Money Shop in contrast charges only £15 for a £100 advance for 30 days, a far cheaper alternative. However, it is not advisable to use either form of borrowing for the longer term and therefore the Money Shop do also offer loans ranging from six months to two years in length, more suitable for longer-term borrowing."
He said that the APR was the cost of credit per year and did not give a true reflection of the cost for a short-term loan but was used to compare loans of similar cost and length.
Mr Bryan said that the company has experienced steady growth over the past 10 years but insisted that there had not been any significant increase in lending to customers since the credit crunch took hold.
He added: "As a professional and fully-regulated lender, the Money Shop has various measures in place to help consumers who may find themselves in some difficulty and provide as much information and support as possible, including clear and regular communication both written and verbal, recommendations for switching to alternative products and comprehensive, structured repayment plans.