500% interest on festive loans
Kiwis desperate for Christmas cash are paying hidden interest rates of almost 500 per cent to loan sharks for last-minute festive funds.
Monday, December 27th 2004, 6:03PM
by The Landlord
Consumers' Institute chief executive David Russell said many loan companies charged $20 a week for every $100 borrowed – or 486% a year.These "Friday night loans" – so-called because of their last-minute nature – generally had to be repaid within a fortnight. Most of those taking out the loans would not be able to meet this timeframe and would incur significant extra charges, Russell said.
"If you are that desperate to borrow money at that rate it seems unlikely that you will be able to comply (pay within the fortnight)", he said.
A $1000 loan could balloon to $1825 over two months, according to the institute's website.
Borrowers filled out a direct debit form which allowed lenders to take money, and extra charges if the money was not paid within the set time, he said.
"They have first call on bank accounts to make withdrawal of loan repayments," Russell said.
The average person borrowed only about $200 but could soon find themselves in "hock" for amounts of significantly more.
"Think mighty carefully about it," Russell said. "You will pay heavily even if you comply with all the terms."
Salvation Army budgeting co-ordinator Vikki Manning said the organisation saw many people who had been trapped by easy access, high-interest loans. "I was talking to someone the other day whose loan went from $150 to $553 in a short time," she said. When the person was unable to pay the loan some of their property was repossessed, Manning said.
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