Payday loan interest rates to be capped

The government recently announced regulations for 2015 which will force payday lenders to cap the amount of interest they can charge when lending to customers. This will prevent spiralling debts if the consumer can’t afford to repay the loan.

Payday loans

Currently, payday loan companies charge 1000-6000% APR (annual percentage rate) – this means that for a £400 loan at 3000% APR, borrowing for one month would cost the consumer £145 interest (on top of the original cost of the loan), £343 for two months, and a whopping £16000 interest fee for borrowing for a year. According to this BBC website.

The BBC Three documentary Young, British and Broke: The Truth about Payday Loans showed the stories of young people who ‘refinanced’ initial payday loans to pay other companies outstanding loans.

For a business, there are several options for obtaining immediate cash advances. If your business turns over substantial credit or debit card sales, you can sell ‘future’ payments for upfront cash – this is known as a cash advance. There are also many types of short and long term loans to provide working capital or cash flow for the business, particularly if the business has existing assets (e.g. personal or commercial property) or has a healthy turnover. For businesses which may have outstanding invoices which need to paid, yet need money to inject into the business upfront, there are invoice factoring and invoice discounting options.

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