Highest APR Ever?
22-03-2010, 08:38 PM
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Highest APR Ever?
I was watching a bit of Jezza (Jeremy Kyle) on Friday on my day off and an advert came on the TV for a "payday loan" company.
Is this the highest APR ever?
Is this the highest APR ever?
22-03-2010, 08:40 PM
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22-03-2010, 08:49 PM
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That's rather high.
Ours at GE Auto finance were capped to 30% for TCF among other reasons.
But i guess the idea of quick quid, is to borrow a smallish amount of cash for a short period of time, hence the high APR, what's not being taken into account/specified is the period of the loan being quoted on! Which will make a difference.
Ours at GE Auto finance were capped to 30% for TCF among other reasons.
But i guess the idea of quick quid, is to borrow a smallish amount of cash for a short period of time, hence the high APR, what's not being taken into account/specified is the period of the loan being quoted on! Which will make a difference.
22-03-2010, 08:57 PM
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It is if you take it out and then cant afford to pay it back.
Boils my piss companies like this.
With it being on during Jezza, its not hard to figure out what their "target market" is.
Boils my piss companies like this.
With it being on during Jezza, its not hard to figure out what their "target market" is.
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22-03-2010, 09:23 PM
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One of the most useful things with APR's is to use as a comparison with SIMILAR products (with similar length of term). Comparing this type of loans APR with one for a car or your mortgage is almost pointless.
22-03-2010, 10:50 PM
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Where APR is useful is in making sure that ALL the charges associated with a loan are included when calculating the cost.
Imagine you want to borrow £1000 for a year and Company A offers 5% interest on the reducing balance and Company B offers 6% flat.
Is Company A better?
And what if A has a £100 arrangement fee and B has a £90 redemption fee. Who is cheaper now?
The APR takes all these factors into account and lets you decide which offers the best value. The problem for these short terms loans is that the lender risks his £100 whether he gives it to you for a day, a week or a year.
That is the "risk" that he takes on as part of his business. He might decide that he wants a £10 return as his reward for that risk, because he needs 10 loans to pay in full and on time to cover the loss if just one customer does a runner with the £100. (The risk factor will vary, but at the bottom of the market the risk is extraordinarily high - especially for the "respectable" licensed lenders who can't just send the boys round!)
If he then wants to make £10 profit on a loan, he needs to charge each punter £20 (£10 for the risk and £10 for the profit). £20 interest on £100 for a week or for a year is 20%, but obviously one loan is for 52 times the duration of the other. Convert the £20 into an Annual Percentage Rate and the 20% for a week becomes horrifying but isn't really that expensive in cash terms but represents appalling value for money.
Imagine you want to borrow £1000 for a year and Company A offers 5% interest on the reducing balance and Company B offers 6% flat.
Is Company A better?
And what if A has a £100 arrangement fee and B has a £90 redemption fee. Who is cheaper now?
The APR takes all these factors into account and lets you decide which offers the best value. The problem for these short terms loans is that the lender risks his £100 whether he gives it to you for a day, a week or a year.
That is the "risk" that he takes on as part of his business. He might decide that he wants a £10 return as his reward for that risk, because he needs 10 loans to pay in full and on time to cover the loss if just one customer does a runner with the £100. (The risk factor will vary, but at the bottom of the market the risk is extraordinarily high - especially for the "respectable" licensed lenders who can't just send the boys round!)
If he then wants to make £10 profit on a loan, he needs to charge each punter £20 (£10 for the risk and £10 for the profit). £20 interest on £100 for a week or for a year is 20%, but obviously one loan is for 52 times the duration of the other. Convert the £20 into an Annual Percentage Rate and the 20% for a week becomes horrifying but isn't really that expensive in cash terms but represents appalling value for money.
Last edited by Iain Mac; 22-03-2010 at 10:53 PM.
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