A reader recently told me he had taken out a loan 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 several years ago. But in fact, it was borrowed in 2018 from Loans2Go.
Here is a snapshot of the personal loan page on the Loans2Go website, with my comments in red.
With these loans:
- you can choose to borrow between £250 and £1,000;
- all personal loans for 18 months at 990%APR;
- the quote above is for weekly repayments. You can also choose to repay monthly, as the reader did, or fortnightly. It 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. He probably didn’t think closely about the cost. But now he wants to know if it is actually legal to have to repay that amount. Unfortunately it is.
High Cost Short Term (HCST) 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.
But the FCA’s definition of High Cost Short Term Credit says it only applies to loans of 12 months or less so the FCA’s price cap rules don’t apply to this loan.
(There is a small point in the definition that says it also covers loans which are to be “substantially repaid within a maximum of 12 months“. But I think that is there to include loans that are just over 12 months long, for example if the final loan repayment was on the borrower’s next payday after 12 months, and to stop a payday lender introducing a 13 month loan product to evade the price cap. I don’t think it’s there to cover 18 month loans.)
I think the price cap should apply to longer loans
I can’t think of any reason why this 18-month loan should not be subject to the same price cap as a 12-month loan.
Going for a longer term loan will normally result in lower and more affordable monthly payments.
But the repayments on this 18-month loan are higher than they would be for a 12-month payday loan! A £650 12-month loan from a payday lender would be about £100 a month in repayments, so that is paying a lot less a month and for a much shorter period.
I think the FCA should revisit the HCST definition to cover “medium-term loans” as well.
Do you know of a more expensive loan?
I don’t think this is the worst legal loan in Britain. Logbook loans (also sold by Loans2Go) and guarantor loans probably deserve that prize because they make it very hard for the borrower to enter any form of debt solution.
But is it the most expensive legal loan in Britain today, comparing what you borrow to what you have to repay?
If you have come across a loan where someone has to repay more than four times what they have borrowed, let me know by adding a comment below this article!