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Defending Lending At 500pc Apr Is Like Defending The Legalisation Of Heroin

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http://www.telegraph.co.uk/finance/comment...-of-heroin.html

Provident shares slumped as Barnardo's, the children's charity, attacked the doorstep lender and others in that market for charging poor families APR's of up to 500pc on some products.

In recent months the noise surrounding lenders like Provident Financial and private-equity owned Brighthouse has intensified. Sub-prime lenders have found themselves under increasing attack from church leaders and others for charging sky-high interest rates.

Having watched companies and individuals binge on credit during the good years, its perhaps not surprising that many question whether allowing the poorest members of society to borrow at up to 500pc APR makes sense.

Peter Crook, chief executive of Provident Financial, argues that poorer families are just as entitled to borrow as middle class families. Further regulation – such as an interest rate cap – on sub-prime lenders, he adds, will only result in the growth of loan sharks.

It is an argument that lacks intellectual rigour and one which, taken to its logical conclusion, could be used to justify the legalisation of heroin.

As we emerge from the wreckage of the crashed credit boom, Provident and its peers will have to do a better job justifying their business models or face a backlash.

A nice 500% return, that's a nice margin to have.

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You can make a reasonable case for the legalisation of heroin.

Economically, certainly.

If you want cheap stuff, legalise it.

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Heroin is highly addictive but apparently not as harmful as some other everyday substances (listed in order of harmfulness):-

1: Paracetamol

2: Sugar

3: Heroin

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You can make a reasonable case for the legalisation of heroin.

Yes, especially if you want to increase tax revenues and stop over doses through users not having a clue over how strong the stuff is they are taking.

But can you defend 500% interest rates?

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If I lend you £20 for a week until your Giro turns up, and get £20 plus 60p back when it does, is that really so much worse than lending you £250k to buy a house and getting back £250k plus £250k in return?

At least the doorsteppers are advancing cash, rather than a promise of cash.

edit: delete rogue quote

Edited by Timm

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for real?

Well sugar is certainly a gateway drug !!

But you should look at the drug usage rates where the laws have been relaxed Portugal and Holland spring to mind.

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V5 Loans

439% typical APR on a £1000 loan secured on your car. ;)

PS Barnado's is a bogus charity, if the wages for their senior roles are anything to go by.

Edited by HPC001

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World's largest heroin grower. Taleban outlawed heroin. Taleban are now very naughty boys and we invade. Heroin supply back on track.

Nothing to see here though ...

It goes through coalition-controlled territory in Uzbekistan too, then towards Turkey\the Balkans, through ports to the West. It is rather convenient that a few thousand British troops are in the province producing 43% of the world's heroin (in Afghanistan).

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http://www.telegraph.co.uk/finance/comment...-of-heroin.html

A nice 500% return, that's a nice margin to have.

No, the whole point of these loans is not to be 500% apr, or in fact anything APR - they (the legal lenders) are meant to be monthly loans, benchmarking it as an APR is not what it's about.

If you broke it down into the real reason and purpose of the loans, then it's no so unreasonable - very high, but given the default profile and the likely term and the admin costs in collection, then it soon adds up.

It's a sensationalist article that deliberately ignores the real reason and usual term of most of these loans.

HOWEVER, there are sharks out there, and they need taking off the streets - we need credit unions, we need to have credit for the low paid etc. but the article reads like a press-release and deliberately avoids prescient facts. There is also the point that many of the people who borrow from these people (the non-legal ones) are not being lent to by mainstream lenders for a very good reason....

Using their numbers, how much do you think it should cost to borrow £500 over 23 weeks where you have to do weekly doorstep collections ? How much do you think it should cost to send a man out, to collect, to leave, to process and to bank the cash ? 5p or £5 a time ?

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A nice 500% return, that's a nice margin to have.

You lend me twenty quid to tide me over 'til payday. One week.

Come payday, I pay you back, and buy you a pint to say thanks for being a mate. Call it £2.50 for the pint.

That's 12.5% in one week, which annualises to a rate of 45602 percent!

Set against that, 500% doesn't seem quite so outrageous, does it?

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You lend me twenty quid to tide me over 'til payday. One week.

Come payday, I pay you back, and buy you a pint to say thanks for being a mate. Call it £2.50 for the pint.

That's 12.5% in one week, which annualises to a rate of 45602 percent!

Set against that, 500% doesn't seem quite so outrageous, does it?

Can't get a pint round here for that.

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You lend me twenty quid to tide me over 'til payday. One week.

Come payday, I pay you back, and buy you a pint to say thanks for being a mate. Call it £2.50 for the pint.

That's 12.5% in one week, which annualises to a rate of 45602 percent!

Set against that, 500% doesn't seem quite so outrageous, does it?

Are the people being targetted by these companies going to be able to pay it back in a week or month? I doubt it. Thats why they have the bad credit history to begin with..

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No, the whole point of these loans is not to be 500% apr, or in fact anything APR - they (the legal lenders) are meant to be monthly loans, benchmarking it as an APR is not what it's about.

If you broke it down into the real reason and purpose of the loans, then it's no so unreasonable - very high, but given the default profile and the likely term and the admin costs in collection, then it soon adds up.

It's a sensationalist article that deliberately ignores the real reason and usual term of most of these loans.

HOWEVER, there are sharks out there, and they need taking off the streets - we need credit unions, we need to have credit for the low paid etc. but the article reads like a press-release and deliberately avoids prescient facts. There is also the point that many of the people who borrow from these people (the non-legal ones) are not being lent to by mainstream lenders for a very good reason....

Using their numbers, how much do you think it should cost to borrow £500 over 23 weeks where you have to do weekly doorstep collections ? How much do you think it should cost to send a man out, to collect, to leave, to process and to bank the cash ? 5p or £5 a time ?

As the point of an interest rate is to force default (as fiat money is inherently completely and utterly worthless) I don't get your point.

They have paper and a scam, other people have real wealth.

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course, a proper bank would never do this.

oh lets see, i have a tight monthly income and outgoing schedule, that I pay through my HSwest account. There is £1000 coming in and £1000 going out every month.

whoops. my employer pays me three days late due to an oversight, and I overdraw £20 with a DD.

I get a letter from the bank saying they are charging me £20 for the Unauthorised OD, plus interest and costs.

now this time next month, I have outgoings of £1020, and income of £1000.

I go overdrawn again ( because of the bank charges) I get another £20 letter and charges.

next month I am £40 overdrawn.

so thats a £20 "loan" over a couple of days could easily become £120 in a year plus costs... and this is going on now!!

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Are the people being targetted by these companies going to be able to pay it back in a week or month? I doubt it. Thats why they have the bad credit history to begin with..

No - they'll have spent the money on heroin.

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Guest happy?

These people add the interest up front and then deduct it from the total advanced - i.e. you pay the interest at the start of the loan. They target the poor and financially ignorant as they're a soft touch - not unlike drug pushers they 'befriend' their mark.

In reality most people on low incomes have very little by way of disposable income - if someone took 100% (or more) of your disposable income you might think twice about the value of this usury.

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These people add the interest up front and then deduct it from the total advanced - i.e. you pay the interest at the start of the loan. They target the poor and financially ignorant as they're a soft touch - not unlike drug pushers they 'befriend' their mark.

In reality most people on low incomes have very little by way of disposable income - if someone took 100% (or more) of your disposable income you might think twice about the value of this usury.

rule of 78....most lenders do this if you get a car, or some other loan.

and these lenders come round to collect the weeklies personally...the rep needs a commission to run his car.

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A nice 500% return, that's a nice margin to have.

I've got a better idea. Write discounted loan @ say 2% teaser for 2 years, then, when they go to 5% and the borrower can't afford them, sell them for 16p in the £ to a debt collector.

Shareholders of bank take a massive hit, having previously assumed the bank was lending at a sustainable rate.

Borrower gets chased for full amount by a bunch of heavies acting on the fringes of the law.

Debts collector, owned by a PE firm make like bandits, getting £1 for every 16p they put down in maybe 6 months - effective APR ~1000%

Oh, wait a mo, that's what happened.

By comparison presenting borrowers with huge upfront charges is virtually saintly.

Edited by Sledgehead

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