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 Tidal launch: The most pretentious lines from Alicia Keys' valedictory speech
- 2 Trevor Noah: Jon Stewart's replacement faces online criticism over 'anti-Semitic' tweets
- 3 Martha Stewart accuses Snoop Dogg of 'smoking for four hours' during Justin Bieber Roast
- 4 Gamers confess the worst things they've done in The Sims
- 5 Syrian child photographed 'surrendering to camera because she thought it was a gun'
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
Revealed: Putin's army of pro-Kremlin bloggers
iJobs Money & Business
£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...
£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...
Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...
Day In a Page
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000