High interest lenders target bad credit customers
December 24, 2008
According to a recent report many people that have bad credit are being targeted by firms that are offering loans at very high rates of interest, with the lenders banking on the fact that this particular client group will be unable to turn elsewhere to get their finance, and will therefore have to opt for high interest loans or risk not getting the credit that they need.
The report suggests that some lenders want to try and maximise on profits, and that they are doing this by getting those with bad credit ratings, who are typically assigned far higher rates of interest on their borrowing, to take out high interest personal loans.
Some lenders that are offering such loans are advertising on sites such as Facebook, where many younger consumers who may have a low credit rating tend to congregate. One advert by a company called Logbook Loans, which secured loans against vehicles, reads: ‘If you’re looking for a loan with no credit check, you’ve come to the right place. That’s what makes Logbook Loans ideal for those with bad credit history, CCJs, arrears or defaults. Come to us and there’s no credit check to let you down – so you can get your hands on extra cash quickly and easily.’
One industry professional from the credit reference agency, Equifax, stated: ‘We are starting to see a vicious downward spiral. Now legitimate sub-prime lenders have been driven out of the market, borrowers are being forced to use less responsible subprime lenders.’
Written by Peter · Filed Under News Loans
In what way are these companies who charge a higher rate of interest less responsible? Surely they charge a higher rate of interest to reflect their level or risks and costs associated with writing such business? They are quite clearly lending to consumers that mainstream lenders refuse to lend to becuase of their credit profile. So for someone to bear that risk, they clearly need to charge interest which is relevant to their exposure. These sub prime companies you refer to will undoubtedly have incredibly high default rates and write offs each month. If these companies weren’t around then were else would consumers go? To unlicenced and unregulated loan sharks?