The dangerous lure of payday loans in disguise
They claim to provide the hard-up with a better source of borrowing but so-called alternatives may just be offering more of the same
Sunday 18 December 2011
When is a payday lender not a payday lender?
The problems of this style of borrowing have been well-documented of late with this type of short-term lender coming under attack from the media and debt charities alike.
The bad reputation of payday loans seems to have led to some organisations trying to distance themselves from the sector, but a closer look at the rates and advertising from alternative companies show they are also encouraging consumers to take out short-term loans at sky-high interest rates.
Payday lenders typically offer 28-day loans at annualised percentage rates topping 4,000 per cent. Applications are generally quick and simple with money often handed over the same day. However, payday lenders argue that because the loans are designed to be repaid quickly, the APR is less relevant than for longer loans. This is true but problems occur when customers miss payments, and charges and late fees are rolled over to the following month, creating a spiral of debt.
Oakam is one company that claims to offer an alternative to payday loans. It markets itself as a "retail financial services company for un-banked and under-banked communities" with 15 stores in London. But a quick scout around its website and it looks very much like a payday lender in disguise.
Short-term loans for up to 60 days are available at APRs of up to 2,866 per cent, admittedly less than the 4,214 per cent APR charged by payday lender Wonga but still eye-watering. Six-month "emergency" loans attract an APR of 405.3 per cent while "bonus" loans have APRs ranging from 86 per cent to 338 per cent.
Emergency loans and bonus loans from Oakam have a cashback option that rewards borrowers if they regularly make payments on time.
Despite its declarations of being different, Oakam is keen to encourage the hard-up to borrow money for non-essentials. Its bonus loan is advertised with the tag line "Get your Christmas wishes sorted" and suggests borrowers spend the money on flights, presents and "extras". Further down the page, it asks "Are you looking for a larger loan for home improvements, a holiday or a new car?"
Andrew Hagger of Moneynet says: "I could understand someone paying these interest rates if they were desperate and their gas or electricity was going to be cut off or they needed to get the car through the MOT to get to work, but to borrow at these rates to pay for flights abroad and Christmas presents is crazy – Christmas can be fun without spending a fortune trying to keep up with the Jones's. It simply isn't worth getting into debt over."
Yet Frederic Nze, the chief executive of Oakam, maintains the company is lending money in a responsible way. "We do not charge rates that are nearly the same as payday lenders. Leading online payday lenders offer loans that have 10 times the APR that Oakam charges," he says, "Furthermore, rather than APR, the main issue at present in the short-term credit industry is that borrowers are allowed to roll over their loans with interest-only repayments.
"Oakam does not allow this to happen on its products and our customers must always pay off a proportion of the original loan amount as well as the interest to ensure a clear date when the loan will be paid off." To be fair, Oakam's cashback feature does encourage borrowers to make repayments on time. However, the cashback received is still dwarfed by the interest paid. For example, if you borrowed £5,000 over three years at an APR of 86.33 per cent, and repaid £85 per week you'd repay £13,260 over three years. If you made all your repayments on time, you'd receive £2,248.67 in cashback, bringing you total interest bill down from £8,260 to £6,011.33.
Mr Nze is quick to point out that Oakam doesn't charge late payment fees for up to 30 days. After that, an extra £20 a month is charged if the customer doesn't agree to a repayment plan. Unlike most other payday lenders, Oakam shares data with credit reference agencies meaning people who repay their debts on time will see their credit rating improve.
"We will not lend to a customer where we think that he might struggle to pay us back after covering his normal monthly expenses," says mr Nze, "We will not give loans to people who have large existing debts. On average, our customers have outstanding debt of no more than £2,000."
Elsewhere on the high street, The Money Shop has launched a prepaid card, the Titanium Cashplus Mastercard. It is £9.95 a month to buy and has a monthly fee of £4.95. However, unlike most prepaid cards, the card offers cardholders the opportunity to apply for a "Debit Protect" loan which effectively turns the prepaid card into a credit card; at 50p a day for every £100 borrowed, it works out to an APR of 455 per cent.
"The danger with these cards is they can easily change from being a prepaid card to a form of credit via their Debit Protect loan," says Una Farrell of the Consumer Credit Counselling Service. "Therefore, someone who was using them as a way of avoiding taking out credit could quickly find themselves owing money. Not only could they be lured into using credit, but very expensive credit due to a very high APR."
Offer cheaper loans – around 1 per cent interest a month – but you will need to save a small amount with them first. Visit www.findyourcreditunion.co.uk
My Home Finance
Is a Government-backed operation that aims to help the financially excluded and so far has 10 high street stores. It offers loans with a typical rate of 69.5 per cent.
If you're sure you can make repayments on time, some credit-card providers will lend to you at a high APR. Vanquis, for example, offers cards at 39.9 per cent. Repaying the card in full each month will help repair a damaged credit rating.
"The weekly payment store" is one of the lenders the financially excluded should avoid. It sells overpriced electrical goods at high interest rates with the debt repaid weekly. Salespeople also try to push expensive insurance and accidental damage cover.
A logbook loan
Securing a loan on your car is a bad idea too. APRs are around 460 per cent and failure to make payments could mean losing your car.
- 1 Cyclist who knocked down three-year-old girl says his life has been 'destroyed'
- 2 Chelsea victory parade mocked on Twitter as 'tens of fans' pack the streets of London
- 3 US warned by Chinese media to stop meddling or 'war will be inevitable'
- 4 Woman, 21, dies after taking contraceptive pill that 'caused fatal blood clot'
- 5 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
The day that Britain resigned as a global power
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
A nation of inequality: How the UK is failing to feed its most vulnerable people
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
Day In a Page
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
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