News of caps on payday loan charges which are due to come into effect in January 2015 has renewed calls from consumer groups and campaigners for a similar cap on charges made by banks and other lenders for credit cards and overdraft. It isn’t always made clear enough to borrowers that an unauthorised overdraft of as little as £100 for one month could be far more costly than a payday loan paid off on time. The exorbitant cost of fees from payday lenders has now been brought into the open and most people are aware of them, even if they can’t help being charged through financial problems, but not many people are aware of how expensive a missed payment or an authorised overdraft can become.
What are the new payday rules?
A great deal of the money that payday lenders make is from fees for late repayment. These (until next January at the latest) have no cap and so sometimes a borrower might end up paying many times the original loan. With the new rules, rates are capped at 0.8% per day of the sum borrowed and anyone defaulting will only be charged £15, with a total cap of all costs capped at 100% of the original loan. This will prevent people ending up with a loan of many times the original, usually with diminishing chances of paying it off, even long term.
A low profile problem
Payday loans attract a lot of press coverage, but the stark fact is that far more people are having problems with more mainstream lenders. As an example, Citizens Advice Scotland (CAS) had over 46,000 calls dealing with various overdraft and credit card problems in the last year, compared with just 8,000 people calling who were in difficulties with payday loans in some way. With some credit card companies charging £30 for a default charge, some financial commentators find themselves at a loss to see why payday fees are being targeted and credit card providers and banks are left out. They feel that as a lot of work has gone towards deciding a reasonable fee – £15 – to apply to payday defaults, that it would be fair to both borrowers and lenders to apply it across the board. The recent announcement of a competition enquiry to be launched into current accounts from banks and other providers would represent an ideal opportunity to set fees at a reasonable level at the same time.
Some people who find themselves in changed circumstances may discover that monthly payments for credit cards or personal loans may become difficult to meet. With swingeing default payments employed by many lenders, just a few months’ difficulty can increase the loan amount by a very large sum. If you find yourself having problems and your financial situation is worsening as a result, give our experts a call and they can explain how you can start to turn your finances around. Our numbers are 0800 0122 111 from a landline or use this cheaper number 0161 926 7670 if you are calling from a mobile.