This is What Is Known As Lying With Numbers: Home Finance Loans
It’s all about the payday loan industry. You know, those appalling people that some 3 million of us borrow from each year. Usually for a lower cost than we’d have to pay a bank for arranging an overdraft, if they would even give us one.
But still, some have decided they’re evil and must be pursued. So we end up with things like this:
My Home Finance loans are not subsidised, and a borrower would pay £7.09 a week for 52 weeks to repay £300, producing a total repayment of £383.68 over the year including interest of £68.68 and an administration charge of £15. The same borrower taking out £300 from Wonga for just 31 days would repay a total of £398.91.
You see what they’ve done there? Compared the costs of a one year loan with those of a one month loan. Which is sorta OK, except when you come to that little arrangement fee. Because you do have to have an arrangement fee. It costs money to decide whether to lend money to someone. So you’ve got to charge for that cost.
My Home Finance, a not-for-profit organisation set up by the government and the National Housing Federation in 2010, charges a representative APR of 69.9%, just 1.66% of the 4,214% APR charged by online lender Wonga.
But when they calculate that APR they’re including only one arrangement fee in the My Home Finance numbers, but 12 in the Wonga numbers. And that’s how those incredible sky high APRs are reached: by including the one off fees as if they are interest.
Hey, maybe it’s even true that payday lenders are evil and should be crushed: but if you’ve got to lie with numbers to make the case perhaps that case isn’t quite as strong as is being made out?