Text message rip-off

by Ed Bowsher on 26 November 2009  |  0 comments
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You can now borrow via a text message. Trouble is, you'll pay 994% for the loan.

Guardian Money has published a shocking story today about a new form of payday loan. 

If you suddenly need cash urgently, you can now borrow via text. You just send a text message to a company called TxtLoan, and if you meet the criteria, you'll find £100 in your bank account in a matter of minutes. 

That sounds fine in principle. But there's a big downside. The charges are very high. 

The loan term is seven days. At the end of that period, the borrower must pay back £110, equivalent to 994% APR. The borrower must also pay a £1 "handling fee" when he requests the loan in the first place. He'll be hit by further fees if he doesn't repay after seven days, and the extortionate interest charges will continue to stack up. 

Txtloan claims it is providing a useful service to people who need cash in a hurry - perhaps if your car has broken down or something like that. The company also told The Guardian that only about 10 to 15% of applicants will get a loan. 

That all sounds very reasonable, but I can't see how a 994% interest rate can ever be defended. If Txtloan is only lending to 15% of applicants, it sounds like they're only going for people with pretty decent credit records. And people with decent credit records can probably find alternative ways of getting £100.

Do go and read the article in The Guardian and find out more.