The Cost of a Payday Loan

Posted On: August 29, 2010 at 11:28 a.m.

Filed Under: Blackpool lawmakers payday loan

With the recent news and controversies circulating the payday loan industry, you may wonder what all these high interest rates really mean. Those in the payday loan industry argue that lawmakers are quoting exorbitant annual interest rates (like 1,000% APR) out of context. Hopefully this article from England gives a bit more insight: “A recent report on payday lending was released on the same day that Blackpool FC, sponsored by payday lender Wonga.com, topped the Premier League – an irony not lost on those who have watched this sector’s growth. [[ads]] Payday lending is a small loan (£100-£1,000) advanced until your next payday (usually a month). Charges are fixed as a fee per £100, and loans can generally be extended each month by paying this fee, or can be repaid in full. Users of the service in the UK tend to be earning less than £25k and more than half are under the age of 35. According to Consumer Focus, which commissioned the report, the number of people using payday loans has quadrupled in the last four years to 1.2 million, with £1bn lent in 2009 alone by around seven major companies. It noted average APRs of 2,500%. If a £100 loan at this rate lasted a year, the annualised cost would be more than £400, on top of the £100 borrowed, but the loan is generally expected to be repaid within a month or two, which might mean a cost of £35 for a 30-day loan” (http://www.guardian.co.uk/society/2010/aug/25/alternatives-payday-lending-banks-support). Yes, if a person hangs onto a loan for a year, there are a great deal of fees. But that is also true of credit cards and overdrafts as well. Payday loans are intended to be paid back in full within a month.