Payday Lenders

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The rate if u pay back the loan in full in the 14 day period is 625%.

That is not taking into account rollover and default fees. Wouldn't surprise me if the loan rolls over a couple of times for the rate to be >1500%.
 
Flash of power said:
They should be regulated, but governments don't seem to have the guts / care factor for some reason - it has been on the agenda for years but nothing has happened.
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Good post. I didn't know they weren't regulated in Australia. If true, that is a problem. I believe they have a place and can be useful to some but if they are taking advantage of mentally disabled like you mentioned then that is appalling.
 
I've had to get a loan from Cash Convertors a couple times when I was struggling, not getting any shifts at work and basically facing a fortnight with no money and no way to get any.

It can be helpful short term but then you have to remember they will take $50 or whatever every week until it's paid plus the interest.
Basically if you borrow $200 you have to pay back $250.
 

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checkraiseulite said:
The rate if u pay back the loan in full in the 14 day period is 625%.

That is not taking into account rollover and default fees. Wouldn't surprise me if the loan rolls over a couple of times for the rate to be >1500%.
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These % values are a bit meaningless in the context of short term loans.

My bank offers personal loans at around 15%. These loans are for $5-50k over 1-7 years. For the smallest loan over the shortest term ($5k, 1 year) the bank makes $750 in interest. At the other end of the scale ($50k, 7 years) they make ~$31k.

If you borrowed $500 over a one month term at personal loan rates then you would end up paying back $6.25 in interest. Why would any business bother to offer that? If you think that say, $50 is a fair fee to borrow $500 short term then if that term is a fortnight then the effective interest rate is still 260%. IMO the interest rates are fine given the size of the loan amounts and the level of risk, it's just the potential incurred fees that are the killer.
 
Scotland said:
These % values are a bit meaningless in the context of short term loans.

My bank offers personal loans at around 15%. These loans are for $5-50k over 1-7 years. For the smallest loan over the shortest term ($5k, 1 year) the bank makes $750 in interest. At the other end of the scale ($50k, 7 years) they make ~$31k.

If you borrowed $500 over a one month term at personal loan rates then you would end up paying back $6.25 in interest. Why would any business bother to offer that? If you think that say, $50 is a fair fee to borrow $500 short term then if that term is a fortnight then the effective interest rate is still 260%. IMO the interest rates are fine given the size of the loan amounts and the level of risk, it's just the potential incurred fees that are the killer.
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I know there has to be a rate for risk and effort. My issue with these loans is that there is not a level playing field, banks have to advise what the actual interest rate is that they are charging upfront and a rate above 48% ( i think it is) is not actually legally recoverable. So why should these lenders have different rules? They don't actually charge intererest, only fees and therefore get around the legalities that other lenders have to comply with. Doesn't seem right to me.
 
Flash of power said:
I know there has to be a rate for risk and effort. My issue with these loans is that there is not a level playing field, banks have to advise what the actual interest rate is that they are charging upfront and a rate above 48% ( i think it is) is not actually legally recoverable. So why should these lenders have different rules? They don't actually charge intererest, only fees and therefore get around the legalities that other lenders have to comply with. Doesn't seem right to me.
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I can't speak for other providers but Nimble do advise the interest and fees up front.

20% of loan amount + 4% per month for a specified loan term with nominated repayment dates. You can call it 168% interest p.a. based on two months or 288% p.a. based on a month or 625% p.a. based on a fortnight but the bottom line is you have to pay back either 124% or 128% of whatever you borrow within the timeframe agreed. The only way they could advise a comparison rate would be to estimate the number of payments they think you would miss and how many days late you would be...

FWIW if payday lenders were limited to 48% interest p.a. they would make at most $37.50 from a $500 loan. No one would bother which plenty would be happy about, but those desperate enough for small loans in a hurry would just end up meeting 'reputable businessmen' in dark alleys.
 
So many people in this country have no clue about money or finance. It's scary. Naturally they are the ones in most cases that get caught out.
Pay day lenders, credit cards, interest free loans, personal / car loans sound great to get what you want or need. People just don't understand the best way to use these products (or how to avoid altogether). We now see credit providers prepared to lend up to 100% of the cost of a home. Say what? That doesn't auger well for the future of many if previous experience reflects on the future.

I'd certainly suggest people learn more about budgeting and credit.

Nothing wrong with credit if it is used wisely and managed well. For the financially clueless though, it's a bottomless pit.
 
rdhopkins2 said:
So many people in this country have no clue about money or finance. It's scary. Naturally they are the ones in most cases that get caught out.
Pay day lenders, credit cards, interest free loans, personal / car loans sound great to get what you want or need. People just don't understand the best way to use these products (or how to avoid altogether). We now see credit providers prepared to lend up to 100% of the cost of a home. Say what? That doesn't auger well for the future of many if previous experience reflects on the future.

I'd certainly suggest people learn more about budgeting and credit.

Nothing wrong with credit if it is used wisely and managed well. For the financially clueless though, it's a bottomless pit.
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Most people learn from their parents, if your parents don't teach you who does? The problem is you don't know what you don't know so hard to ask the right questions or look up the right information without someone guiding / teaching you.

I would hazard a guess and say 99% of people on here who are good managers of money and understand how things work, were either guided by their parents, or their parents were so bad at managing money they learned what not to do.
 
Flash of power said:
Most people learn from their parents, if your parents don't teach you who does? The problem is you don't know what you don't know so hard to ask the right questions or look up the right information without someone guiding / teaching you.

I would hazard a guess and say 99% of people on here who are good managers of money and understand how things work, were either guided by their parents, or their parents were so bad at managing money they learned what not to do.
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Or perhaps they were bad at managing money and decided to investigate why they always had none?

Just look at Chrisco, you don't need parents to teach you that "I give you $1100, and you give me $1000 back" is a complete rip off. You only need to not be a complete moron.
 

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Simple Jack said:
Or perhaps they were bad at managing money and decided to investigate why they always had none?

Just look at Chrisco, you don't need parents to teach you that "I give you $1100, and you give me $1000 back" is a complete rip off. You only need to not be a complete moron.
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Its like the rent to buy stuff, people think its cheap because they are only paying $12 a week for a brand new TV, when in reality over the 24 months, they pay double the cash price for things.

Look at this PS4 from Rentlo - $16.95 a week for 24 months. Thats $1700 bucks for something that retails for $500! http://www.rentlo.com.au/computer-office/gaming/sony-playstation-4
 
I tend to agree with Simple Jack, but I find it interesting that the sensible thing to do a generation ago was to buy your first home as soon as you can and pay it off as soon as you can so you get out of the rent trap etc. and the generation that now encourages it not only didn't do it (they bought, borrowed, bought, borrowed to inflate their way to wealth) have created a system where following the advice can often do more harm than good.

Everyone has their own perspective on things. I've lived at home (not while working full time), rented and paid a mortgage. I didn't consider renting a waste compared to the other two. I've owned 3 cars in my lifetime and paid cash for all 3. I'm not fussed having never owned a brand new one and for the amount I currently drive I don't see the point, but am happy to spend thousands travelling. The idea of borrowing money to buy a car or a TV etc. just seems crazy to me.
 
Simple Jack said:
Or perhaps they were bad at managing money and decided to investigate why they always had none?
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Possibly, but this is rare, most people's attitude to money is usually well formed by the time they get to adulthood.

There are people on very low incomes that are great money managers and even manage to save a little on welfare, and there are people on obsecene incomes that can't manage it and are in debt up to their eyeballs with very little to show for it. This comes from the early years in most cases.
 
Flash of power said:
Possibly, but this is rare, most people's attitude to money is usually well formed by the time they get to adulthood.

There are people on very low incomes that are great money managers and even manage to save a little on welfare, and there are people on obsecene incomes that can't manage it and are in debt up to their eyeballs with very little to show for it. This comes from the early years in most cases.
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Lot's of people are born into religious families who then decide it's a bunch of malarkey too.

Upbringing should not be an excuse for extremely poor money management skills (even if it is a disadvantage).
 
Simple Jack said:
Lot's of people are born into religious families who then decide it's a bunch of malarkey too.

Upbringing should not be an excuse for extremely poor money management skills (even if it is a disadvantage).
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Not necessarily an acceptable excuse, but where do people go to learn about stuff like this? You don't know whay you don't know.
 
Flash of power said:
This type of lending started the whole global financial crisis, should be avoided, if you can't save a deposit, you can't afford a house - SIMPLE.
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What about government mortgage agencies like Homestart? I got one of their graduate loans - 3% deposit, 18 year mortgage, 5 years into the mortgage and still on track to pay it off within the 18 years (if not a few months sooner).
 
Percentages, formulas etc. are one thing, common sense is another. If you earn $2000 each month after tax than you can afford to spend up to $2000 each month. Obviously things average out and no one month is identical to the next but if you're borrowing because on average you're spending more than you earn than you are always going to get into trouble.

IMO to a lot of people interest really just means the cost of convenience. A carton of Coke is about $15 for 24 cans. One cold bottle of Coke the same size from the fridge at the same shop is usually about $3. People pay the premium for convenience.

Say you want a car that costs $20k. If you get a loan at 10% over 5 years your repayments are $89 a week. By the time you've paid it off you'll have paid over $25k that you would be very lucky to get $10k for. Is that worth it? To some people it is, others it is not.

I also think people have a skewed idea of renting vs buying in terms of what consitutes "wasted" money. If you rent you are effectively just paying for a service (shelter). If you buy you are paying interest for the ability to borrow and principal to own the asset you have borrowed against. At the start of a P&I loan you're paying next to no prinicpal. I've seen a few people stop "wasting" money renting and take on mortgages which saw them paying more than their rent was only to sell within a couple of years for zero capital gain.
 
Flash of power said:
Not necessarily an acceptable excuse, but where do people go to learn about stuff like this? You don't know whay you don't know.
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I'm happy to give a pass to anyone who didn't complete primary school. Reading English, multiplying and knowing which number is bigger than the other are all you really need to know.
 
This will be interesting to keep an eye on.
http://www.abc.net.au/news/2014-09-...-class-action-against-cash-converters/5710914
A Federal Court ruling has paved the way for a class action by 40,000 people against Australia's largest pawn broking service Cash Converters.

Two class actions have been filed in the Federal Court on behalf of Cash Converters customers in NSW.

Law firm Maurice Blackburn says the customers were charged illegal levels of interest of up to 633 per cent on personal loans.

Cash Converters denies the allegation and has applied to have the case struck out.

The company argued that its fees were legal and that western Sydney pensioner and grandmother Julie Gray - who is leading the class action - is not entitled to act on behalf of the other customers.

The full bench of the Federal Court comprised of Justices Jacobson, Middleton and Gordon allowed the Cash Converters application, but dismissed it with costs.

The customers are seeking about $40 million compensation and their case is expected to be heard early next year.

Since July 1, 2013, the interest rate cap on loans in NSW has been 48 per cent.

Outside court, Maurice Blackburn principal Ben Slade said the ruling was a victory for all class actions in Australia where one person lodges a case on behalf of others.

"It's been an issue causing concern for us for a very long time," he said.
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