Simon Read: Pets and sweethearts are this week's payday loan targets
Payday lenders are all set to become more mainstream, if you believe the accountancy firm PricewaterhouseCoopers. The bean counters said in a report published this week that they've seen increasing evidence of consumers seeking alternative finance such as payday loans.
High-cost, short-term lenders have come under increasing criticism in recent years. The main complaint is that they encourage vulnerable people into debt they can't afford.
But PWC suggests something else is happening too: that better-off people are turning to payday lenders. "The convenience and innovation offered by alternative lenders are encouraging a broader and more prosperous selection of consumers to choose their services over banks," PWC said.
Convenience is about all there is to recommend most payday loan firms. If you need money in a hurry and are prepared to pay well for the privilege, they can deliver. But their methods of publicising their products are questionable and, some would say, downright irresponsible.
Last month, for instance, I was told about a payday lender called Cash Genie which encouraged students to use its expensive credit to pay for booze or nights out in articles published on its website. After I contacted the firm – which offers loans at 2,339 per cent APR – it, to its credit, removed the articles.
This week saw the launch of a new payday company which targets pet owners. Petloan aims its expensive short-term loans at animal lovers who are suddenly faced with unexpected vet's bills. The company's quoted APR? 2,120 per cent.
Targeting people in distress – as owners of injured or ill pets will undoubtedly be – smacks of something unpleasant. It's true that pet owners may need to find cash quickly to pay for medical treatment for their animal, but it is likely to be cheaper to arrange an overdraft.
Pet owners could prepare for a medical eventuality by taking out insurance. Cover has become reasonably affordable in recent years. Alternatively, it's an idea to set a little aside to have some cash to fall back on in an emergency rather than pay through the nose for a short-term loan.
Another loan firm has been busy targeting the romantic among us by offering instant loans to pay for a Valentine's night out. Cash Lady's quoted APR is 1,737 per cent. But if you're tempted to borrow £180 to pay for a slap-up Valentine's meal or night on the tiles you'd have to repay £225. For an interest charge of £45 for one night's money, I'd hope it was worth it!
But back to the bean counters at PWC. They're predicting that the next step for payday lenders is to start offering more traditional financial services, such as credit cards, longer-term loan products or even current accounts.
Frankly that would be something to welcome, as they would be forced to toe the line and adopt better lending practices. That would be good news.
Santander this week made it harder for borrowers to qualify for an interest-only mortgage. The Spanish-owned bank has doubled the amount of deposit needed to get a loan, increasing it from 25 per cent of the value of a property to 50 per cent.
I've never been a fan of interest-only mortgages. Years ago they were only sold alongside a separate investment which borrowers had to take out to repay their loan. But somewhere along the way that crucial requirement was quietly forgotten.
It was partly on the back of rampant house inflation that lenders became so lax. They knew that even if borrowers weren't reducing the amount of their loan, they were actually increasing the amount of equity in their property by dint of rising property prices.
It's easy to see why interest-only mortgages are popular with borrowers. The monthly repayments are lower. But the long-term costs are much higher. As a simple rule of thumb, if you take out a standard rate mortgage and pay interest over 25 years, you'll end up paying twice as much for the property than you agreed.
So if you were to pay £500,000 for a home, the total cost of it – if you didn't repay any of the loan early – could eventually top £1m. You can do similar sums with any borrowing as interest, particularly spread over years, very quickly adds up.
I know interest rates are low now, but they won't remain so for ever, so imagine you took out £100,000 mortgage over a 25-year period, and paid an average interest of 6 per cent. If you overpaid every month by just £100 you would save £26,892.54.
Not only that, you would cut the term of the mortgage, as the net effect of the overpayments would mean you'd be eating into the capital – the amount originally borrowed – much more quickly. In fact in the example, paying an extra £100 a month would cut six years and four months off the life of the mortgage.
For that reason I hope that other lenders follow Santander's prudent lead and make it much harder to qualify for an interest-only loan. They can be useful, if you know you're going to come into some money and be able to pay off the loan.
But unless you know you've got a certain legacy or an assured bonus, an interest-only mortgage is simply storing up a huge expensive financial headache for the future.
L ast week I took the Money Advice Service to task for spending £40.5m on 16 debt advisers. I'm happy to admit I made a mistake. In fact the cash will pay for 16 debtadvice "providers" who, in turn, will employ approaching 500 individual debt advisers.
- 1 Apple has installed security backdoors on 600m iPhones and iPads, claims security researcher
- 2 Malaysia Airlines MH17 crash: Pro-Russian rebel 'admits to shooting down plane'
- 4 Is Gideon Levy the most hated man in Israel or just the most heroic?
Malaysia Airlines flight MH17 crash: 'Nine Britons, 23 Americans and 80 children' feared dead after Boeing passenger jet is 'shot down' near Ukraine-Russia border
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: victims’ bodies bundled in black bags and loaded onto trains
iJobs Money & Business
£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...
£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...
£380 - £480 per day: Orgtel: Business Analyst - Banking - Edinburgh - £380 - ...
£70000 - £80000 per annum: Harrington Starr: My client is a leading financial ...
Day In a Page
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar