Loan sharks?

[Scotty]

Have you seen some of the stuff they come out with in the ads? I can see the point of them for a tide-you-over loan of a couple of hundred quid for a very short period (for those incapable of phoning their bank and arranging an overdraft), but the "satisfied customers" who claim "My bank wouldn't lend me the money to start my own business (Wonder why? There's normally a good enough reason, like being too bad a risk...) but Payday Loans lent me the money and now I run my own company..." This is plainly absurd, unless the business could ramp up immediately and have a massive turnover in no time at all - there aren't many legal activities that can do that :-? How much does someone normally borrow to set up a business? Surely it has to be in the thousands, and it's normal not to expect to turn a profit for a couple of years at least, so borrowing a few grand at 2000% APR over a couple of years would be more than a little pricey and would surely consign a fledgling business to struggle for years...

[Dabz]

if you can't borrow money through the normal methods (bank, standard loans) then there's usually a bloody good reason. The idea of "I don't get paid until next week but I need money NOW!" is yet another example of the sad and sorry state of our society...we've had 2 decade of being able to have whatever we want, straight away, which is why we're now in a financial crisis

[Kevinb]

Have you seen some of the stuff they come out with in the ads? I can see the point of them for a tide-you-over loan of a couple of hundred quid for a very short period (for those incapable of phoning their bank and arranging an overdraft), but the "satisfied customers" who claim "My bank wouldn't lend me the money to start my own business (Wonder why? There's normally a good enough reason, like being too bad a risk...) but Payday Loans lent me the money and now I run my own company..." This is plainly absurd, unless the business could ramp up immediately and have a massive turnover in no time at all - there aren't many legal activities that can do that :-? How much does someone normally borrow to set up a business? Surely it has to be in the thousands, and it's normal not to expect to turn a profit for a couple of years at least, so borrowing a few grand at 2000% APR over a couple of years would be more than a little pricey and would surely consign a fledgling business to struggle for years...

I would like to borrow £10k to start a loan shark company. I wonder if Lloyds would accept this as a good business venture. Return is instant or concrete boots and the nearest lake ? ;D

[Kevinb]

if you can't borrow money through the normal methods (bank, standard loans) then there's usually a bloody good reason. The idea of "I don't get paid until next week but I need money NOW!" is yet another example of the sad and sorry state of our society...we've had 2 decade of being able to have whatever we want, straight away, which is why we're now in a financial crisis

Financial crisis I had to mothball the west wing of the house and get rid of the butler. Times are hard. ;D

[Squashed_Fly]

I can see plenty of reasons why they would be used legitimately. And I've never heard of a business being set up wth one!

Many people have lifestyles in accordance with their salaries. You build up a good life, big mortgage based on your earnings etc. Then for some reason, your salary drops dramatically - couple of bad sales months and no commision etc. If you've always had a great credit history, then you might be lucky enough to have your bank extend your overdraft. If you have anything less than perfect, then you may find you need a little extra to top up your salary for a short while.

Wilts Builders is right though - they are only a good fallback plan if used sensibly and paid back on time thus avoiding huge interest charges etc. If you're not 100% sure you can pay it all back on time, then it's not worth it. With what I used to do for a living (credit controller), I've seen many people fall foul of them. But I've also seen lots of circumstances when they worked fine and were better than bank charges.

Bottom line is, if you're bad with money, don't touch them. If you're good with money, but need a short term solution to a problem (car breaks down etc), then they can be a good solution.

[Dabz]

if you're good with money then when your salary is allowing a good lifestyle you will limit the size of the mortgage you take to allow saving for the worst case scenario...?

[Ducatista]

Is there a ceiling on interest rates or can these apparent loan sharks fix whatever rates they like?

Legally you can charge whatever you like for most services. There are laws about not mis-representing things and making charges and fees clear, that's why we have APR, but there is no cap on interest.

If you're good with money, but need a short term solution

If you're good with money you should have a budget for forseeable expenses (like car breakdown) and insurance or contingency plans for events like death, sickness, accident and redundancy, so should in general not need a short term solution.
If you don't have enough spare each month to put aware for expected expenses then you are living beyond your means.

[Ducatista]

How is it legal to charge 2000 % apr on a loan when the interest rate on savings is 0.5% ??

2000% is unsecured.
Savings are not 0.5% that's the BOE base rate but if you are saving you'll have guarantees with that. Up to £85K you are covered by the financial services compensation scheme.

2000% is extortionate, but you aren't comparing like for like here.
Savings come with guarantees, unsecured loans don't.

[Col]

Peter Cushing wanted paying for a show---here's how he got on looking for a pay day

http://www.youtube.com/watch?v=rMVMhkLIsEE

[redken1]

May be I’m stupid, but I don’t really understand the logic where banks like Vanquis target potential customers who are high risk due to defaulting on previous financial agreements, offering them loans at extortionate interest rates. I know these banks must play the percentages game (excuse the pun) in the knowledge that a significant number of their customers will default and they offset this loss with high rates.

Of course consumers should refrain from using credit if they do not have the means to meet the repayments, but the reality is that that’s never going to happen.

Why can’t the government regulate on two counts?

Introduce mechanisms whereby lenders are statutorily obligated to carry out extensive checks to ensure that a perspective customer has the means to repay a loan. (Certainly appears not to be the case at the moment)

Secondly, set a ceiling on interest rates making loans more affordable.

Just a layman's take on the easy buy now pay later culture.