Payday loan firms are charging interest of more than 4,000%. This means customers of the widely advertised short-term loan providers could enter into a spiralling debt situation.
Short-term credit agreements can leave customers needing to repay enormous sums to firms. For some, a better option may be to take out an unsecured loan. Payday loan companies such as Wonga advertise loans with interest rates as high as 4,214%, and many others will charge upwards of 1,700% interest. For a customer borrowing £300 for 28 days at 4,214%, this could mean a repayment of nearly £390.
Late payment is also an issue, with firms imposing a penalty charge of £20, typically.
According to Nigel Cates, deputy director of consumer credit at the Office of Fair Trading (OFT), several online ‘lenders’ are operating without the required Consumer Credit license. He told Which?: ‘Many payday loan firms are unlicensed and are a cause of significant problems, which is why the OFT is taking action to crack down on the sector.’
Which? credit expert Martyn Saville said: ‘We think charging £90 for borrowing £300 over a month is outrageous. These firms too often cash in on the desperation of the financially excluded, many of whom would be better off borrowing from a credit union or seeking free advice from a debt agency.’
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