Lender's rates sharp but not for the smart
A new entrant into the payday-lending market is attempting to trigger a price war but its short-term loans still have an annual interest rate of 365 per cent.
Richard Mataita of Smartcash told Sunday Star-Times he was too busy to speak thanks to a deluge of loan applications but the company, which was launched in July last year, appears to be trying to sell itself as the lowest-cost payday lender.
Payday loans are an online boom industry making loans of anywhere from $50 to $1000, in some cases with the promise that loan applications will be accepted or declined in four to five minutes.
The loans are ultra-short, designed to be a cash stop-gap for borrowers until they next get paid and though the cost in dollar terms of one of these loans is not especially high, the interest, if annualised, adds up to eye-watering percentage figures.
A typical loan may be for $200 to be repaid in seven days with the repayment sum being $250, enough to get someone by until their next payday but daily interest rates of between 1 per cent and 1.7 per cent add up to a range of annual interest rates of 365 per cent to 624 per cent.
The industry is in boom mode and Smartcash appears to be attempting to cast itself as the Kiwibank of payday lending, including advertising its New Zealand ownership.
Not all of the online payday lenders are locally owned, with companies from Australia and even Scandinavia seeking to make a buck from high-interest, short-term lending here.
All of the first 10 online payday lending sites in a Google search have been launched in the past three years as the economy has stuttered but Smartcash is the only website to make a price play and to compare its fees with others in the market, boasting that it "offers the lowest payday loan rates of any online payday loan specialist in New Zealand".
It compares a $300 loan for two weeks, repaid in two instalments, and advertises its 1-per-cent-a-day interest rate as the joint lowest on the market, with Cashtrain, but also claims lower fees.
While its loan would cost $57 in fees and interest, those of nine rivals - all of which come up in the top-10 in a Google "payday loans" search - cost between $74 and $123, it claims.
Establishment fees can be as high as $45 for a $300 loan and there are default fees that can go as high as $60, making those of banks look modest.
Their high costs means payday loans are not for the smart but for the dumb or desperate.
As the Cashtrain website warns: "Short-term loans can be expensive and may not solve your money problems."
- Sunday Star Times