Pay-Day Loans

Annoying TV adverts?

High interest rates?

Theft?

What do you associate with pay-day loans?                                            

The Telegraph reports that as of today, the 7^th of December, 25,000 people so far this year have turned to charities for help with the repayment of their payday loans. They also expect that this number will reach 30,000 by the end of the year due to the desperation consumer’s harbour for some Christmas cash. This caps off four successive years where the charity in question, StepChange Debt Charity, has seen a dramatic increase in people seeking help. So why is this so prominent?

Pay-day loans are easy. You agree on how much you want to borrow, for how long and they let you know what the repayment charge will be. I did this with Wonga, pretending to borrow £100 for 7 days and the quote I received was that I had to repay £112.70 within the time-span. Expensive yes, but not yet excruciatingly painful for my wallet. If I were to choose not to pay within our agreed time-frame then this is where I would start to feel it. Companies like Wonga try to trick customers by claiming that they are forced by law to say that their APR is 4214%, and that in reality their interest rates are just under 1% per day, and so this would only make a 360% interest rate yearly. However, this would only occur if you were to take out a loan of the same amount every day. If you took out one loan lasting just one day, and did not pay it back for a year, the COMPOUND interest on this loan would make it 4214%!  In other words, borrow £1 for one day and not pay it back for a year, and end up with a bill for £42.14! 

And why does this work? When was the last time you saw a 99p Store in Hadley Wood, or a Sam’s Chicken for that matter? The same can be said for Pay-day loan companies: they target areas in which there are people constantly battling financial and social welfare problems. This way they have customers who are only five minutes around the corner, adding to the ease of service. One such example of this is Walthamstow. Already burdened with the T*sco advertising immersing them, the people of this fair area are now also being bombarded with firms like The Money Shop on every street corner. The mouse trap has been set for the local residents, with many likely to suffer in the near future when the going gets tough for them too.

So what should we do about this? Perhaps a political justice would serve best. Why is it that loans such as this is are illegal in many of the top developed countries: Germany, Japan, the USA? They have recognised this and the independent competition commissions within their governments have acted swiftly to expel these “thieves” from their system. So why shouldn't we? I ask you that Mr Cameron.