Payday loans cost Kiwis a big premium
Hundreds of cash-strapped Kiwis are struggling to repay their payday loans , with some facing bills up to six times the original loan amount, according to the Family Budgeting Services Federation.
Chief Executive Officer Raewyn Fox said that while “payday” type loans – short-term, unsecured cash loans meant to keep people waiting until their next salary – were not new, they had increased. rapidly in number in recent years.
“Five years ago we rarely heard about it. Now we hear about people struggling by the hundreds.”
In some cases, loans of $ 300 to $ 400 have multiplied to reach $ 2,000 within a few months.
“The interest rate is high. There is often a 30 day period in which they have to pay it back. If they go out of that period, then in some contracts the interest rate rises quite quickly after that and in others don’t. They vary. “
New Zealand financial writer Amanda Lyons said the interest rates charged – which some lenders have hidden in the fine print – could be a real trap. “Some of the advertising seems to target vulnerable people. They say things like ‘no questions asked’ and ‘no credit history check’.
According to its website, Payday Advance – which was not available for comment – charges up to 15% interest per week – 780% per annum, while Save My Bacon’s annualized interest rate is 547. 5%.
Save My Bacon chief executive Kent Gillman said the annualized rate was misleading because clients could only be charged interest for 60 days – and that was in extreme cases.
Customers could get loans of up to around $ 500 for up to 31 days at a daily interest rate of around 1.5%, and interest was typically capped after 45 days.
Customers also paid a $ 15 set-up fee and direct debit fee, which varied depending on the length of the loan and the frequency of repayments.
He defended the company’s interest rate. “It’s an insecure facility. Our typical client is a young professional in his thirties… they find this quite acceptable. We’re taking a little risk and we have our own processing costs.
“We believe that we provide an important social service. You have to make credit available where it is appropriate.”
Save My Bacon did not lend to beneficiaries or low-income people and tried to get clients to be able to repay the loan, he said.
“We only supply to people who have a permanent job and who meet our income threshold of $ 400 net after tax per week.”
However, he had noticed an increase in the number of unregistered “unscrupulous” lenders offering the loans.
The company backed a bill that would make it illegal to lend to people who could not be reasonably expected to repay it without suffering serious hardship.
He would also push for lenders to be required to express interest rates on short-term loans as a fee, as they are easier to understand than annualized interest rates.
Cash Converters has also reported strong demand for its Cash Next Pay loans.
It charges an annualized rate of approximately 480%, non-cumulative and capped at 70 days.
Spokesman Colin Mahoney said Cash Converters welcomed the introduction of responsible lending regulations and guidelines.