In January, a reader told me about a loan he had for £650, with 18 monthly repayments of £147. This adds up to a total repayment of £2,650 – an eye-watering amount and more than four times what he borrowed.
At first I thought this was probably taken out years ago. But in fact, it was borrowed in late 2018 from Loans2Go.
Loans2Go also offer logbook loans, but this article is just about their standard personal loans. I have updated this article with information about what the Financial Ombudsman thought about one of these loans.
These Loans2Go personal loans:
- are for amounts between £250 and £1,000;
- all have an 18 month term;
- there is a set APR of 990%.
The quote above is for weekly repayments. You can also choose to repay monthly or fortnightly but this makes little difference to the total repayment.
Is it legal to charge that much interest?
The loan was taken out by the reader when he was desperate and didn’t think closely about the cost. But now he wants to know if it is actually legal to have to repay that amount.
There is a maximum cap on the amount of interest that can be charged on payday loans. Lenders can’t add more in interest and charges than the amount borrowed. If that payday loan price cap had applied to this Loans2Go loan:
- the maximum repayment would have been £1,300, less than half what L2G charges;
- the monthly repayments would have been lower than for L2G’s loan.
The FCA calls payday loans “High Cost Short Term Credit”. Its definition of High Cost Short Term Credit is a loan over 100% in APR and of 12 months or less.
So the Loans2go loan looks as though it is outside that definition because it is 18 months long.
But there is a small point in the FCA’s definition that says it also covers loans which are to be “substantially repaid within a maximum of 12 months“.
An Ombudsman decision on a Loans2go loan
Normally you don’t get very far if you complain to the Financial Ombudsman (FOS) that the interest on a loan was too high.
You can win complaints about expensive credit if you can show the loan was unaffordable for you, but not just because the interest was too high if it was clearly explained at the start… and it was legal.
But here is a decision from the Financial Ombudsman about one of these L2G loans in 2019: Miss R’s personal loan provided by Loans 2 Go Limited .
Miss R borrowed £900 and was due to repay about £3,700, so about £2,800 in interest – she complained this was too high. She didn’t make an affordability complaint.
The Ombudsman points out that some respondents to the FCA’s consultation on the price-cap rules wanted the definition to be more specific, warning that loans of up to 24 months could potentially be caught by it. But the FCA said the definition was broad in order to prevent firms from trying to avoid the rules.
The Ombudsman was concerned that:
the potential harm to a consumer – as a result of having to pay such excessive charges over a longer period – is arguably greater [than for a loan of less than 12 months].
I think that last point is exactly right. If Miss R had taken a payday loan she would have paid a lot less each month and for a much shorter period than taking the L2G loan.
The Ombudsman decided he didn’t have to rule on whether the loan broke the payday loan price cap because the interest rate was in any case simply too high:
this loan had an interest rate so outrageous (i.e. one which works out at well in excess of 100% per annum) that I think a court may well have found it grossly exorbitant and that the agreement grossly contravened ordinary principles of fair dealing.
He reached that decision looking at Miss R’s situation and the fact that L2G knew she was in financial difficulty:
L2G … unfairly took advantage of the situation by providing such an expensive product.
So the Ombudsman’s decision was that L2G should reduce the starting balance on Miss R’s loan to £1,800 instead of c. £3,700 – a major cut in the amount of interest she had to pay.
Reasons to complain about one of these loans
I think this is the worst loan in Britain. It’s not right that you should have to pay every month for 18 months than you would if you take a payday loan and make 12 monthly repayments.
You have two possible reasons to complain about this sort of L2G loan:
- that it was unaffordable for you – the monthly repayments were so high you couldn’t afford to pay them without hardship, borrowing more or getting behind with important bills. This is a standard affordability complaint, used for many other sorts of loan. If you win this you will get a refund of all the interest.
- that the interest rate was unreasonably high and that L2G was not treating you fairly in offering you this loan. You could win this even if the loan repayments were affordable for you, and Miss R’s case suggests you would get the interest reduced if you do.
How to complain
First to Loans2Go
You have to complain to Loans2Go first, you can’t go directly to the Ombudsman.
It doesn’t matter if you have repaid the loan or you are still paying, you can still complain.
Use this template as a basis and make any changes so it reflects your case:
Change that so it is right for you and email it to firstname.lastname@example.org.
A good idea to send your bank statements
If L2G ask for bank statements, send them if you have them. They will prove your point that the loan isn’t affordable.
If you don’t have them, this is a good time to get them as they are very likely to be needed at the Ombudsman. You can get statements even from closed accounts within the last six years.
Have Loans2Go made you a poor offer?
You can send your complaint to FOS if Loans2Go have rejected it or have made you a poor offer. This is easy, just use the simple FOS form which asks you what they need to know to set up your case.
If L2G have offered to wipe a small balance or take some money off what you owe, is this a good offer?
Sometimes they offer 50% of the interest off “as a goodwill gesture”. Or to reduce your balance by 50%. These are often very poor offers, you could get a lot more by going to the Ombudsman.
Sometimes they will increase an offer if you push them. Here is what one reader said:
They replied firstly with the offer to half what was left and agree a payment plan and I refused and they immediately came back and wiped the loan clean and removed it from my credit file.
It’s up to you what you think a good offer is. But you can’t change your mind later if you accept and then think you shouldn’t have.
So ask a question in the comments below if you aren’t sure.