“Payday loans” — emergency sums to tide you over if you’re short while waiting for your salary — are an expensive way to get money. New operator Ferratum offers a technology twist by incorporating the ability to apply for short-term loans via SMS messages, but the rates remain just as painful.
Because of credit checking, you can’t apply for an initial loan on your phone, but once you’ve signed up, you can get further sums via your phone. But you’ll pay dearly for the privilege.
A $200 loan with a seven-day repayment will incur a $42 charge, which is an effective interest rate of 21 per cent. Borrow $900 and pay it back 45 days later and the ‘loan charges’ are $378 — an interest rate of 42 per cent. At that price, a cash advance on your credit card is much better value. The lesson? Don’t take out a payday loan.
Abe
Wednesday, February 22, 2012 at 2:59 PMArent people sick of those HAPPY family images on websites like this? Really is the opposite of this.
Blake
Wednesday, February 22, 2012 at 3:21 PMCan we get an edit/update that correctly references the interest rates in % per annum . Not just at flat % rates.
Because the 42% mentioned in the article is actually 340% per annum. Changes the context of what you’re saying dramatically.
LG
Wednesday, February 22, 2012 at 11:36 PMThat first interest rate isn’t 21%, it’s 1009%. The second one isn’t 42%, it’s 285%
That is one impressive loan sharking operation.
Angus Kidman
Thursday, February 23, 2012 at 6:20 AMI was calculating the simple rate, not the effective annual rate. Ugly either way!