Get me to pay day - ok - but it will cost you 1500%

Quick cash, cash rush, same-day-money, get me to pay-day, pay-day express - the brand names of the pay-day loan market which claims to provide an essential service for cash-strapped people who need an injection of liquidity to cover unforessen spending and avoid high charges on unauthorised overdrafts. Whatever the social value of providing such cash funds to those in desperation the rates of interest charged on the loans are incendiary to say the least and it is little wonder that the Office of Fair Trading is expected to investigate this segment of the home finance industry.

Payday loans typically involve a lender advancing a customer cash, usually for a month, against a post-dated cheque. Money Supermarket provides some information on the range of loans available and it soon becomes clear just how staggeringly high are the interest rates charged. Take this example from the Quick Quid website

The maximum loan amount for United Kingdom residents will be £750.
New customers will be limited to a maximum loan amount of £300.
An advance payment is not required for a QuickQuid payday loan
Your loan finance charge will be £25 per £100 borrowed per pay period

So for example - a £200 advance would cost the following:

Loan issued on 03/05/2007 £200 Fund loan
Pay Date 1 31/05/2007 £50 to cover Finance Charge
Pay Date 2 30/06/2007 £250 to cover Finance Charge & Principal sum lent
Total amount payable to QuickQuid £300
APR 1576.6%

Unbelievable - but for thousands of people the pressure to take a pay-day loan is huge and can only get worse in these difficult times. Pay day loan businesses have migrated into the UK from the United States - where their activities have been curtailed by legal capping of some interest rates. The sooner the Office of Fair Trading investigates the better.