Text loans 'carry 994% APR'

27/11/2009

Borrowers of "text message loans" are facing very high interest rates, an investigation has revealed.

TxtLoan, which offers customers the chance to get access to short-term credit via small loans of £100 a time, charges APRs of 994%, the Guardian reported.

Commonly, users get the loans after suffering a minor cash crisis, such as attempting to purchase goods at a retailer but then realising that they do not have enough money to make the transactions.

The customer then sends a text message to the loan company and receives the £100 minutes later.

However, the amount to be paid back after the loan's seven-day term stands at £110 - and late payment charges if the borrower cannot pay the loan in time can cause this total to spiral upwards.

By day 23 of the loan, as much as £200 might be owed.

Talking to the newspaper, a TxtLoan spokesman said: "The nature of the service makes it a viable alternative to incurring unauthorised overdraft charges."

Also, commenting on the service, EuroDebt director Kevin Still said: "The TxtLoan website is fairly transparent and upfront with regard to its fees and penalty charges, which is fairly unusual for a lender, and it is clear that they are selective in terms of who they lend to. If the FAQs are to be believed, they only lend to credit worthy individuals and provide a clear warning to have the £110 available when the loan falls due after seven days.

"EuroDebt sees a number of vulnerable clients that fall victim to Pay Day loan companies where the downsides of the arrangement are not so clearly communicated and are offered to people who are not credit worthy and probably using the money to pay off debts with far lower interest applicable. This is how a 'debt spiral' starts, especially in an economy where there a major lending restrictions in the 'prime' market."

Tags; Income Worries and Debt, Credit Card Lifestyle,

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