Immoral Lending?

[BoxBasher]

Just got home to leaflet put through my door by the provident loans company (aka "The Provvy").

They quote a typical apr of 177% (yes, one hundred and seventy-seven).

No wonder people get into debt...

 

[solo]

Yeah, but for some people a company such as the provvy is the only option if you want credit or a sharp intake of cash. My mother was with the provvy and another company for years. Only way to get us clothes and food sometimes. I think the provvy only done vouchers but the other company whose name eludes me dealt in cash.

 

[BoxBasher]

but the other company whose name eludes me dealt in cash.

Shopacheck?

the problem now is that some people are racking up huge debts way beyond their means, and then applying for IVA's (individual voluntary agreements) which allow them to write off large lumps of debt that they would never be able to repay without going bankrupt.

Not an unreasonable situation if you are struggling for money to feed the kids and you have got into a spiral of debt because of this.

What makes my bloodboil is these people who get into debt for completely the wrong reasons ie "shoes & handbags" or big TV's and other gadgets. These peole have got into debt for vanity not necessity and can still have it written off.

 

[cuthbert7454]

THEY SHOULD BE PUT IN PRISON! In many countries they would be.
177% is mugging people that can least afford it. I live on a council estate and the company reps call from time to time to ask if we would like a loan, no questions asked. I shut the door on them. I would not even talk to these crooks.

 

[securespark]

Sure it isn't 17.7% A.P.R.?

 

[big-all]

Sure it isn't 17.7% A.P.R.?

nope they can be anywhere between 60 and 200 percent

 

[masona]

The Sad Facts About Loan Sharks - Money Lenders
It is a sad fact that time and time again these outfits are reportedly charging up to 1000% interests per year for loans. That's what the Competition Commission is telling us, despite how unbelievable it might sound. Let us for a minute put this into context. The more reputable firms charge 177% and that figure in itself is unbelievably high.

The worst part is there are supposedly 2m Britons buying into these sorts of arrangements. This is for the sole reason that they have little money and the outfits who lend cash on your average high street would never dream of letting them through the front door.But finally the commission is saying enough is enough and taking a stand. What it is doing is making it clear and publicly known that there is no way that interest rates of 177% let alone 1000% can be justified.

Their customers? Usually single parents, who live in areas of high deprivation. Debt collectors turn up at their front door for the payments -usually once a week or fortnight. You might be thinking to yourself that those who have little money are a high risk and that the debt collectors are within their rights to charge the high interest rates. But rates as high as 1000%? Or even 177%? One could argue that nothing justifies rates that high.

 

[JohnD]

Looking at it from the outside, it seems incredible that people will enter into these arrangements.

If you have the "saver" mentality, and you want to spend a thousand pounds at Christmas, you tuck away £20 a week for 50 weeks, and there you are.

If you have the "borrower" mentality, you borrow the thousand first, and then might have to pay back £40 a week for 50 weeks.

You might sincerely believe that it is impossible for you to tuck away £20 a week in savings... but you simultaneously believe that you are able to pay £40 to the loan sharks.

 

[BoxBasher]

If you have the "saver" mentality, and you want to spend a thousand pounds at Christmas, you tuck away £20 a week for 50 weeks, and there you are.

But what if you put £20 a week into a Christmas club that goes bust?

It was definitely 177% APR quoted.

Borrow £300: 59 weekly repayments of £9, total repayable £531.

[531/300 x 100 = 177]

As an aside to the "company going bust" scenario:
Why is it if you buy a sofa (cash) and the company goes bust before delivery you lose your money, but if it goes bust after delivery you would still have to pay the finance? Surely the finance payments should be used to refund the lost deposits? The business creditors have insurance to cover such losses, the family who have saved £££'s to buy a new suite don't.

 

[Steve]

Theres that many furniture shops out there these days, always going bust etc, I think i'd rather buy my furniture from Argos (not on a 28% argos card though!).

 

[JohnD]

But what if you put £20 a week into a Christmas club that goes bust?

"Christmas clubs" are a rotten idea. Luckily in this country we have things called "Banks" "Building Societies" and "Credit Unions".
Not only to these institutions pay interest on your money, and allow you to draw it out instead of forcing you to buy overpriced hampers; they also have depositor protection schemes to compensate you in the rare event of them being able to repay their customers.

 

[big-all]

If you have the "saver" mentality, and you want to spend a thousand pounds at Christmas, you tuck away £20 a week for 50 weeks, and there you are.

But what if you put £20 a week into a Christmas club that goes bust?

It was definitely 177% APR quoted.

Borrow £300: 59 weekly repayments of £9, total repayable £531.

[531/300 x 100 = 177]

As an aside to the "company going bust" scenario:
Why is it if you buy a sofa (cash) and the company goes bust before delivery you lose your money, but if it goes bust after delivery you would still have to pay the finance? Surely the finance payments should be used to refund the lost deposits? The business creditors have insurance to cover such losses, the family who have saved £££'s to buy a new suite don't.

keep in mind how extreme the payback amount is as the average amount owed would be at the mid point at £150

so not only are you paying interest on capital your paying interest on the interest

 

[masona]

You might sincerely believe that it is impossible for you to tuck away £20 a week in savings... but you simultaneously believe that you are able to pay £40 to the loan sharks.

The problem is John, they want the money now and not wait for a year to save up & worry about it later attitude. It’s a pity it’s not part of the school education for finance.

 

[empip]

The whole thing although amoral ... stinks.

The APR (annualised percentage rate) is actually a whopping 201% !! For £300 borrowed over 59 weeks at £9-00 per week.

Using :-
P(R-1) / 1-(R^(-n)) = n'thly repayments.

Where P = Amount borrowed
R = In this weekly case, 52nd root of (APR/100 + 1)

3.01 ^ (1/52) = 1.021417.. being weekly (int rate/100 + 1)

n = number of periodic repayments. = 59
R = approximately 1.021417

Thus :-
300 (1.021417-1) / 1-(1.021417^(-59)) becomes 6.3 / 0.7066 = £9.004.. per period or £9-00 per week.

I guess financially challenged people feel they have to get the money first and worry about paying for it later - desparation. This is not a nice place to be and I am sure there are as many in it through no real fault of their own as there are through negligence.
================================
BTW I used Excel and it's 'goal seek' utility to find the real APR. given the amount borrowed, repayment and number of periods.

The formulae..

Next, effectively asking 'Goal Seek' to change the 'APR guess' figure to produce 9 as periodic repayment amount.

The result ...

Hence APR = 2.01 x 100 ..... 201%

 

[BoxBasher]

Empip - You got me on the maths.

I lost the leaflet so couldn't remeber the eact weekly repayments so I worked it out using a calculator, it wasn't until I posted that I realised I'd messed up...

I think it was only about 53 or 54 weeks, can't remember the exact.

How would I work that out using a formula?