Why the Payday Loans Industry Has Come Under Criticism

Payday Lending has acquired a somewhat negative press over the last few years. Payday Advance Companies are frequently criticised for charging “extortionate” interest rates and for target the least qualified borrowers in the country. As the popularity of these types of loans has increased, so has the outrage among certain sections of the media and vociferous lobbyists that the practice has allowed to go on unopposed. Payday Lenders have seen regulations change in recent years, and it is now possible to observe the APR of each loan product being displayed prominently on each Payday Lenders website (as opposed to in the fine print where it may have been found many years previous).

The main point of contention between Payday Loan Companies, the media and lobbyists has been the manner in which Payday Loans have been marketed as well as the high APR placed against the average Payday Advance Loan. In some instances, the APR on a Quick Cash Advance Loan can be as high as 1000%, a figure which to many seems wholly unreasonable and out of proportion to the amount of credit being offered. However, it’s important when looking at this rate to place it in context with the duration of a Payday Advance Loan. APR has been designed to give borrowers an indication on the amount they are likely to pay over the course of a year on any given form of consumer credit. The main problem with using this metric to determine how much money will be due on a Payday Advance Loan is that you’re not comparing like-for-like.

The average duration of a Payday Loan is only two weeks. The interest rate on the average Payday Advance Loan is about 20%. As such, for a loan of £80, you will be due to repay a Payday Loan Company £100. This figure, when looked at in isolation from a very misleading APR, seems a lot more reasonable to consumers and accounts for the growing popularity of Payday Advance Loans as a quick form of consumer credit.

Mark Jang is a renowned author of finance articles and in particular, on matters relating to Payday Lending. Find out more information and apply online for a Payday Loan at Payday Loan Companies.