Adverts for payday loans in particular were criticized in the Credit Action report. Their chairman Malcolm Hurlston said: “Many of the ads for payday loans are from small US-owned firms branching out to a new market… There are also illegal ads from a number of big name companies active in the UK for a number of years…”

So have things changed one year on? Well, Credit Action has said: “Mission accomplished,” which is great news for consumers. However payday and logbook loans are still with us, so it’s essential that potential borrowers understand the nature of such loans before signing any legal agreement.

What are Payday Loans?

Many will recognize the scenario of running out of money just a short time before their next salary is due forcing them to apply for a payday advance. An Internet search for companies advertising payday loans reveals thousands of results. So what’s on offer?

Payday loans tend to be less than £1000 and be based on salary and are offered to people in fulltime employment with a bank account. A check guarantee card is normally required.

A search of online payday loans advertisers shows that in many cases an Actual Percentage Rate (APR) of between 1355–2680% is not uncommon. While some of the sites are transparent about their APR some hide it in the small print and a few don’t show it. Some businesses, in an attempt to defend the interest rate, argue that the APR appears artificially high because of the short-term nature of the loan.

What are Logbook Loans?

Logbook loans are specifically targeted at the most vulnerable people in society, those with bad credit history, with little chance of getting a loan from more traditional sources.

This type of loan comes with a very high rates of interest. One online example had a typical 437% interest on a £1,500 loan. Repayments on this amount at this APR over 78 weeks would result in a total repayment of £4,180.

Loans Secured on a Car

The loans are secured on the car, the ownership (logbook) of which is transferred to the lender. In return the borrower keeps the vehicle to use. However if payments are missed the lender can take the car and If it’s subsequently sold for less than the amount owing on it, the balance has to be paid. So it’s possible to end up with no car and still be in debt.

Credit Action work with the debt counselling charity the Consumer Credit Counselling Service (CCCS) to offer people with personal debt problems free and independent advice.

The information in this short article is not exhaustive and does not constitute financial advice.