Use of APR 'skews view of payday loan deals'
PAYDAY lenders are calling for all loan providers to spell out their costs clearly after finding widespread confusion among consumers when charges are given as an annual interest rate.
Less than one quarter of people surveyed by the Consumer Finance Association (CFA), which represents short-term lenders, could identify the correct answer when asked to calculate the cost of borrowing £100 for a month using the financial services industry's standard APR (annual percentage rate) calculation.
The CFA said the use of APRs means the payday industry has come in for "unfair" criticism for charging annual interest of thousands of per cent, when in reality the average cost of a payday loan, which is intended to last for a few weeks rather than a year, is £25 per £100 borrowed.
The trade body wants to see more loan providers spelling out borrowing costs in cash terms as well as APRs, as its members already do.