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Payday Loan Rates Hard to Understand

Written By On 19/09/2013

Research carried out by the Consumer Finance Association suggests that people of all ages do not understand how the annual percentage rate works.

The APR is the rate that payday lenders have been forced to display clearly when they are advertising to their customers, but the industry feel that they are put at a disadvantage because of the short term length of the loan. It will often show figures in the high thousands which they feel is misleading for the applicants.

The CFA who are the principal trade association for the short term loan industry feel it would be more pragmatic to show interest rates in a much simpler fashion such as pounds and pence.

Russell Hamblin-Boone, CFA chief executive asks that all lenders be treated equally. He wants a

level playing field for all types of providers as payday loans are unfairly criticised because of APR's and nobody ever pays back thousands of per cent in interest on a short-term loan

Payday loans have been under attack for some time now with some politicians asking for them to be banned, while others feel that capping the interest rate charges as some other countries around Europe have already done would be the way to go. Firms such as Wonga and QuickQuid seem to have been scrutinised the most, probably because they advertise very strongly and are therefore in the limelight more.

The Financial Conduct Authority will become the new watchdog for the payday lending industry picking up the mantle from the Office of Fair Trading from 1st April 2014. They say we need to 'proceed with caution' when it comes to capping. They are concerned that making it too low could cause more harm than good and make more lenders leave the market.