This is the way it works: you’re short of cash and need a quick loan. You know someone, or there is a payday loan company near you, and you get some ready cash to help you through the day, a few days, the week. Simple as that.
Except that the interest many people pay on their short-term loans eats up the money they need to survive the next week or month, and they are forced to go back again and again to cover the gap, to bridge themselves over to the next check. We’re talking about interest rates which no respectable bank would be allowed to charge, and which no one would wish to pay if a bank did charge them.
In the United States there has been a minor outcry against this form of (legal) loan-sharking, but only minor since it takes money from the pockets of poor people who, as we all know, count for less than upper middle class or multimillionaires – who can negotiate their own interest rates at any bank any way.
Screenshot Source: Twitter / Salon
In the United Kingdom there is a similar sort of business model, but not based on paychecks, since most receive their wages or salary paid directly into their checking account. This, I might add, is the general form throughout Europe: you’re paid monthly – often with a large portion of your wages being credited at the end of the month and the balance by the fifteenth of the following month to allow extra hours and allowances – and the money goes direct into the bank. No need to take a check there and wait for it to clear and, more important, the bank knows the cash is coming, so credit ratings are better and loans easier to gain.
This similar paycheck loan business model reared its ugly head in my direction as I was watching an English television program, and didn’t hurry off during the commercial break to make a coffee or answer the call of nature. I caught an advert for a quick loan service with an Annual Percentage Rate of nearly seventy percent. This, I thought, is unreal: how can anyone want a loan from such a company when banks offer loans with an APR of under twenty percent?
It clearly works, otherwise these companies would be able to afford the advertising costs. I caught another one, with an APR over three hundred percent. This, I thought, is the limit.
It wasn’t. A third one – this is in the course of one evening – advertised with a rate of six hundred and eighty-five percent. Try and get your mind around that figure. You borrow one dollar and have to pay so much back on that small loan that, when calculated over twelve months, it comes to nearly seven hundred percent.
I switched off completely when I saw one for one thousand, two hundred percent APR. Let them leave Europe, clearly everything is fine in the United Kingdom.
- Viktoria Michaelis.